Elasticity
determinants of the elasticity of demand
-Availability of substitutes, -degree of necessity -the proportion of a purchases's budget consumed by the item -time period involved -brand loyalty -who's paying
characteristics of elastic items
-items not usually a necessity - market is competitive with many substitutes/alternatives
ranges for elasticity
0-.5 inelastic .5-1.5 unitary elastic 1.5 and up very elastic
Elasticity
The degree to which buyers and sellers respond to price changes.
true or false? Other things equal, more revenue can be raised by taxing a good that has an inelastic demand than a good that has a more elastic demand.
True
if the quantity demanded is likely to be less responsive to price changes, the good in question is likely to be
a necessity
determinants of the elasticity of supply
availability of the inputs needed for production available production capacity time period required to produce more of the good or service
which of the following would likely have the most inelastic demand? a. seven-up b. gasoline c. generic brand margarine d. a big mac
b. gasoline
A person who has an addiction for a product will have what kind of elasticity of demand for that product?
inelastic demand
characteristics of elastic items
items are high demand typically a necessity
if scientists discover alternative ways of powering automobiles and markets are created for these alternative fuels, the demand of gasoline in the long-run is going to become
more elastic
the elasticity of demand measures the responsiveness of:
quantity demanded to price change
The elasticity of supply measures the responsiveness of
quantity supplied to price change
if as small percentage increase in the price of a good results in a large percentage reduction in the quantity demanded of the good, then demand is said to be
relatively elastic
if the quantity demanded increases by 20% in response to a 20% decrease in price, demand is classified as
unit elastic