Econ Exam 3 - Price Elasticity of Demand

Goods without close substitutes tend to have

Less Elastic Demands

If the cross price elasticity of demand between two goods is positive

They are substitutes because the price of one good and the demand for the other move in the same direction

Ed=1

Unit Elastic

The extreme case is perfectly inelastic supply

Where Es=0

The extreme case is perfectly elastic supply

Where Es=Infinity

The more time that people have to adapt to a new price change,

the greater the elasticity of demand

If the income elasticity is negative, then

The good in question is an inferior good, because the change in income and the change in quantity demanded move in opposite directions

If demand is relatively less elastic than supply in the relevant tax region,

The largest portion of the tax is paid by the consumer

However, if the demand is relatively more elastic than supply in the relevant tax region

The largest portion of the tax is paid by the producer

The smaller the proportion of income spent on a good

The lower its elasticity of demand

The income elasticity of demand is defined as

The percentage change in quantity demanded at a given price/the percentage change in income

If the percentage change in quantity demanded is GREATER than the percentage change in price that caused it, then

The quantity demanded is elastic

If the percentage change in quantity demanded is LESS than the percentage change in price that caused it, then

The quantity demanded is inelastic

If the income elasticity is positive

Then the good in question is a normal good, because the change in income and the change in quantity demanded move in the same direction

If the amount spent on a good relative to income is small (such as salt),

Then the impact of a change in its price on one's budget will also be small

When the price falls on the upper half of the demand curve,

There is a negative relationship between price and total revenue

When price falls on the upper half of the demand curve,

There is a positive relationship between price and total revenue, so demand is relatively price inelastic

When demand is relatively price inelastic

Total revenues will be lower at lower prices

Ed > 1

Elastic

The flatter the demand curve, the more

Elastic is demand

Goods with a supply elasticity that is greater than one

Are relatively elastic with supply

The price elasticity of supply is defined

At the percentage change in the quantity supplied divided by the percentage change in price

The cross price elasticity of demand measures

Both the direction and magnitude of the impact that a price change for one good will have on the quantity of another good demanded at a given price

If the cross price elasticity of demand between two goods is negative, they are

Complements, because the price of one good and the demand for the other move in opposite directions

If the quantity demanded is very responsive to even a small change in price, we call it

Elastic

The relative elasticity of supply and demand determines

The distribution of the tax burden for a good

The income elasticity of demand coefficient not only expresses the degree of the connection between two variables, but also

Indicates whether the good in question is normal or inferior

Ed < 1

Inelastic

If even a huge change in price results in only a small change in quantity demanded, then demand is said to be

Inelastic

The law of demand establishes that quantity demanded changes

Inversely with changes in price

Consumers will respond __________ to price changes for these goods (small ticket items, like salt)than for similar percentage changes in large-ticket items (car).

Less

For many goods, especially non-durable goods, the short-run demand curve is generally (more/less) elastic than the long-run demand curve

Less

The tax burden falls primarily on the side of the

Market that is less elastic, which has nothing to do with who actually pays the tax at the time of purchase

Goods with close substitutes tend to have

More Elastic Demands

The price elasticity of demand is defined as the

Percentage change in Quantity Demanded/Percentage change in price

The cross price elasticity of demand is defined as the

Percentage change in quantity demanded of one good at a given price/the percentage change in price of another good

According to the law of supply, there is a __________________ relationship between price and quantity supplied, ceteris paribus

Positive

Total revenue is the

Price of a good x Quantity of the good sold

Income elasticity of demand is a measure of the

Relationship between a relative change in income and the consequent relative change in quantity demanded, ceteris paribus.

The price elasticity of demand measures the

Responsiveness of quantity demanded to changes in price

Goods with a supply elasticity that is less than 1

are relatively inelastic in supply

The price elasticity of supply measures

how responsive the quantity sellers are willing and able to sell is to changes in the price

If the price rises and the quantity demanded falls

then total revenue rises because the percentage decrease in the quantity demanded is less than the percentage increase in price

If the demand curve is inelastic

total revenue will vary directly with a price change