Elasticity

Long-run supply is the _____

most elastic

The elasticity of supply depends on (2)

- Resource substitution possibilities - Time frame for supply decision

The factors that influence the elasticity of demand

- The closeness of substitutes - The proportion of income spent on the good - The time elapsed since a price change

Momentary supply is _____ The quantity supplied immediately following a price change is constant.

-perfectly inelastic The quantity supplied immediately following a price change is constant.

Calculating Price Elasticity of Demand

=Percentage change in quantity demanded/ Percentage change in price (%⌂Q demanded/%⌂P)

The formula for calculating the income elasticity of demand is

Percentage change in quantity demanded/ Percentage change in income (%⌂Q demanded/%⌂P income)

The formula for calculating the cross elasticity is

Percentage change in quantity demanded/ Percentage change in price of substitute or complement (%⌂Q demanded/%⌂P of substitute or complement)

The elasticity of supply is calculated by using the formula:

Percentage change in quantity supplied Percentage change in price (%⌂Q supplied/%⌂P)

When the price changes, total revenue also changes. But a rise in price doesn't always increase total revenue because....

The change in total revenue due to a change in price depends on the elasticity of demand

total revenue test

a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (when all other influences on the quantity sold remain the same).

If demand is inelastic, a 1 percent price cut increases the quantity sold by less than 1 percent, and total revenues _____

decreases

If your demand is inelastic, a 1 percent price cut increases the quantity you buy by less than 1 percent and your expenditure on the item _____ If your demand is unit elastic, a 1 percent price cut increases the quantity you buy by 1 percent and your expenditure on the item _____

decreases

If your demand is unit elastic, a 1 percent price cut increases the quantity you buy by 1 percent and your expenditure on the item _____

does not change

The closer the substitutes for a good or service, the more_____(elastic/ inelastic) are the demand for the good or service.

elastic

Time Elapsed Since Price Change The more time consumers have to adjust to a price change, or the longer that a good can be stored without losing its value, the more _____ (elastic/ inelastic) is the demand for that good

elastic

Luxuries, such as exotic vacations, generally have _____ (elastic/ inelastic)

elastic demand

If a price cut increases total revenue, demand is _____ If a price cut decreases total revenue, demand is _____ If a price cut leaves total revenue unchanged, demand is ______

elastic; inelastic; unit elastic

Proportion of Income Spent on the Good The greater the proportion of income consumers spend on a good, the larger is the _____(elasticity/ in-elasticity) of demand for that good

elasticity

total revenue from the sale of good or service is equal to

equals the price of the good multiplied by the quantity sold (Pgood x Qsold)

The more time that passes after a price change, the _____ (greater/ smaller) is the_____ (elasticity/ inelasticity) of supply

greater ; elasticity

The easier it is to substitute among the resources used to produce a good or service, the_____(greater/ smaller) is its_____ (elasticity/ inelasticity) of supply

greater; elasticity

Perfectly elastic demand

horizontal demand curve

Supply is perfectly elastic if the supply curve is _____ and the elasticity of supply is _____

horizontal; infinite

perfectly inelastic demand

if the quantity demanded doesn't change when the price changes, the price elasticity of demand is zero

If demand is elastic, a 1 percent price cut increases the quantity sold by more than 1 percent, and total revenue _____

increases

If your demand is elastic, a 1 percent price cut increases the quantity you buy by more than 1 percent and your expenditure on the item _____

increases

Necessities, such as food or housing, generally have _____( elastic/ inelastic)

inelastic demand

demand can be (which 3 things) and can range from _ to _

inelastic, unit elastic, or elastic, and can range from zero to infinity

If the income elasticity of demand is less than zero (negative) the good is a(n)_____

inferior good

Supply is unit elastic if the supply curve is _____ and passes through the origin. (Note that slope is irrelevant.)

linear

cross elasticity of demand

measure of the responsiveness of demand for a good to a change in the price of a substitute or a complement, other things remaining the same

income elasticity of demand

measures how the quantity demanded of a good responds to a change in income, other things remaining the same

elasticity of supply

measures the responsiveness of the quantity supplied to a change in the price of a good when all other influences on selling plans remain the same

If the income elasticity of demand is greater than 1, demand is income elastic and the good is a(n) _____

normal good

If the income elasticity of demand is greater than zero but less than 1, demand is income inelastic and the good is a(n) ______

normal good

The cross elasticity of demand for: -substitute is _____ -complement is _____

positive; negative

If demand is unit elastic, a 1 percent price cut increases the quantity sold by 1 percent, and total revenue_____

remains unchanged

Short-run supply is _____ Long-run supply is the most elastic

somewhat elastic.

What is unit elastic demand

the price elasticity of demand equals 1

If the percentage change in the quantity demanded is infinitely large when the price barely changes,

the price elasticity of demand is infinite and the good has a perfectly elastic demand

If the percentage change in the quantity demanded is greater than the percentage change in price,

the price elasticity of demand is greater than 1 and the good has elastic demand

If the percentage change in the quantity demanded is smaller than the percentage change in price,

the price elasticity of demand is less than 1 and the good has inelastic demand

%⌂Q=%⌂P

unit elastic demand

price elasticity of demand

units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same

Supply is perfectly inelastic if the supply curve is _____ and the elasticity of supply is 0.

vertical and 0