Chapter 5
relatively inelastic
when the buyer is not that responsive to changes in price. when elasticity is between 0 and 1
relatively elastic
when the buyer is very responsive to changes in price when elasticity is higher than 1
do you have to consider the sign for cross price elasticity
yes
income elasticity if demand formula
(%∆quantity demanded)/ (%∆income)
cross price of elasticity of demand formula
(%∆quantity demanded)/ (%∆price of another good)
elasticity of supply formula
(%∆quantity supplied)/ (%∆price)
price elasticity of demand formula
(%∆quantity) / (%∆price)
does the sign matter for income elasticity of demand
yes
luxuries
tend to have larger income elasticities. have a relatively elastic demand
what does it mean if the cross price of elasticity of demand is 0
the goods are unrelated
the midpoint of the demand curve is what kind of elastic
unit elastic
if someone is perfectly inelastic what will the line look like
vertical
unit elastic
when the %∆quantity is the same as the %∆price. elasticity equals 1
price elasticity of demand
a measure of how responsive buyers are to changes in the price
elasticity of supply
a measure of how responsive sellers are to change in price
income elasticity of demand
a measure of how responsive the demand for a good is to change in income
cost price elasticity of demand
a measure of how responsive the demand of one good is to price changes of another
perfectly elastic
buyers quantity demanded is infinitely responsive to changes in price. when elasticity equals infinity
perfectly inelastic
buyers quantity demanded is totally unresponsive to changes in price. when elasticity equals 0
what has a negative cross price elasticity of demand
compliments
elastic demand
demand curve has a smaller slope
inelastic demand
demand curve has a steep slope
above the midpoint of the demand curve is what kind of elastic
elastic
easy available variable inputs make supply
elastic
extra capacity makes supply
elastic
supply elasticities is all about what
flexibility
more competing goods mean what for elasticity of demand
greater elasticity
if someone is perfectly elastic what will the line look like
horizontal
below the midpoint of the demand curve is what kind of elastic
inelastic
if income elasticity of demand has a positive sign what does that mean
it is a normal good
if income elasticity of demand has a negative sign what does that mean
it is an inferior good
necessities have ________ elastic demand
less
if demand curve for your product is relatively elastic then you should ___________ the price of your good to increase your total revenue
lower
if you have to calculate the percentage of change what kind of formula do you use
midpoint [(x2-x1)/(x1+x2)/2)]
consumer search makes demand _________ elastic
more
demand gets ________ elastic over time
more
easy entry and exit market makes supply ________ elastic
more
inventories make supply __________ elastic
more
specific brands tend to have _________ elastic demand than categories of goods
more
supply becomes ________ elastic over time
more
is elasticity and slope the same thing
no
when demand is unit elastic does the total revenue change
no
with price elasticity of demand does sign matter
no
total revenue
price x quantity
if the demand curve for your product is relatively inelastic then you should __________ the price of the good to increase your total revenue
raise
when demand is elastic how does revenue change
revenue decreases
when demand is inelastic how does revenue change
revenue increases
the elasticity of demand is all about what
substitutability
what has a positive cross price elasticity of demand
substitutes
necessity
tend to have a small income elasticities. relative inelastic demand
