economics ch 5
demand is elastic if the price elasticity of demand is
greater than 1
if an increase in income results in a decrease in quantity demanded of a goos then for that good the
income elasticity of demand is negative
when demand is inelastic an increase in price will cause an
increase in total revenue
demand is inelastic if the price elasticity of demand is
less than 1
demand is said to have unit elasticity if the price elasticity od demand is
equal to 1
when demand is perfectly inelastic the demand curve will be
vertical bc buyers purchase the same amount as before whenever the price falls or rises
for a good that is a luxury demand tends
to be elastic
when demand is unit elastic price elasticity of demand equals
1, and total revenue does not change when price changes
if the price elasticity of demand for a good is 2.0 then a 10 percent increase in price results in
20 percent decrease in quanityty demanded
when demand is elastic a decrease in price will cause
an increase in total revenue
a good will have more inelastic demand the
broader the definition of the market
demand is said to be price elastic if
buyers respond substantially to changes in the price of a good
goods with many close substitutes tend to have
more elastic demands
if 2 goods are complements their cross price elasticity will be
negative
economists compute the price elasticity of demand as the
percentage change in quanitity demanded divided by the percentage change in price
if the quantity supplies is the same regardless of price then supply is
perfectly inelastic
if 2 goods are substitutes their cross price elasticity will bw
positive
assume that a 4% increase in income results in a 2% increase in quantity remaded of a good. income elasticity of demand for the good is
positive, and the good is a normal good
the price elasticity of demand measures how much
quantity demaned responds to a change in price
suppose that corn farmers want to increase their total revenue knowing that the demand for corn is inelastic corn farmers should
reduce the number of acres on which they plant corn
if the quantity supplies responds only slightly to changes in price then
supply is said to be inelastic
incomse elasticity of demand measures how
the quantity demanded changes as consumer income changes
demand is said to be inelastic if
the quantity demanded changes inly slightly when the price of the good changes
cross price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in price of another good
Key determinant of the price elasticity of supply is the
time horizon
for a good that is a necessity demand tends
to be Inelastic