Econ Chapter 4
Income elasticity of demand formula
% change in quantity demanded / % change in income
Price elasticity of demand formula
% change in quantity demanded / % change in price
Greater than or less than 0: The cross-price elasticity of demand for a pair of substitutes.
Greater than 0
Greater than or less than 0: The income elasticity of a normal good.
Greater than 0
Greater than or less than 0: The price elasticity of supply.
Greater than 0
Greater than or less than 0: The cross-price elasticity of demand for a pair of complements
Less than 0
Total revenue will decrease if price
Total revenue will decrease if price
Suppose that the demand for good X is price inelastic, then a 10 percent increase in the price of good X will result in
a less than 10 percent decrease in the quantity demanded.
Price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
Arc price elasticity of demand is
calculating percentage changes relative to the average value of each variable between two points.
The numerical value of elastic price elasticity demand
elastic >1 (greater than 1)
Suppose demand is unit elastic, the % change in quantity demanded is _____ to the % change in price.
equal
Good A has a high price elasticity of demand; it is most likely that
good A has many substitutes.
The numerical value of inelastic price elasticity demand
inelastic <1 (less than 1)
The numerical value of perfectly elastic price elasticity demand
perfectly elastic = Infinity
For a horizontal demand curve, demand is
perfectly elastic.
The numerical value of perfectly inelastic price elasticity demand
perfectly inelastic = 0
Stephanie buys one coffee each morning, regardless of the price. we can conclude that Stephanie's demand for coffee is
perfectly inelastic.
A given change in gasoline supply will result in a larger change in the equilibrium price of gasoline if the
price elasticity of demand for gasoline is lower.
A product with an inelastic supply means that
producers are relatively insensitive to a change in the price of the product.
For a given shift in supply, the less elastic demand is, then
the greater the change in price.
The price elasticity of supply is a measure of how sensitive producers are to a change in
the price of a good or service.
Along a linear demand curve, total revenue is greatest where demand is
unit elastic.
