ECON 102 Chapter 5

What is the price elasticity of demand?

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

What is elasticity?

A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants.

What do goods with many close substitutes tend to have?

A more elastic demand because it is easy for consumers to switch from that good to a substitute as the price of that good rises.

What does the price elasticity of demand measure?

How willing consumers are to buy less of a good as its price rises.

What kind of elasticity of demand do necessities tend to have?

Inelastic demands. Ex: . If the price of food rises, you will continue to consume food because you must eat to survive

What effect does an inelastic demand curve have on elasticity and total revenue?

Means price elasticity of demand<1 Price and Total Revenue move in the same direction

What effect does a unit elastic demand curve have on elasticity and total revenue?

Means price elasticity of demand=1 Changes in price do not change total revenue

What effect does an elastic demand curve have on elasticity and total revenue?

Means price elasticity of demand>1 Price and Total Revenue move in opposite directions

What elasticity of demand do narrowly defined markets tend to have?

More elastic demand

What elasticity of demand do broadly defined markets tend to have?

More inelastic demands

Is the price elasticity of demand the same as the slope of the demand curve?

No, it is closely related to the slope.

How does the time horizon effect elasticity of demand?

Over shorter time horizons goods tend to have more inelastic demand; whereas, over longer time horizons goods tend to have more elastic demand.

What are the types of demand elasticity measurements?

Price Elasticity of Demand Income Elasticity of Demand Cross-Price Elasticity of Demand

Why does the slope of a linear demand curve remain constant, but the elasticity doesn't?

Slope is the ratio of the changes in the two variables while elasticity is the ratio of percentage changes in the two variables.

What is total revenue?

The amount paid by buyers and received by sellers of a good.

What does inelastic mean?

The quantity moves proportionately less than the price.

What does elastic mean?

The quantity moves proportionately more than the price.

What does unit elastic mean?

The quantity moves the same amount proportionately as the price.

What will lowering the price of a good do if the current price is in the inelastic portion of the demand curve?

decrease total revenue

What kind of elasticity of demand do luxuries tend to have?

elastic demands. Ex: If the price of cable rises you may choose to do without, because it is not necessary for survival.

What are the references use for price elasticity of curves?

elastic, inelastic, or unit elastic

What will lowering the price of a good do if the current price is in the elastic portion of the demand curve?

increase total revenue

What do elastic demand curves look like?

relatively flat perfectly elastic is a horizontal line

What doe inelastic demand curves look like?

relatively steep perfectly inelastic is a vertical line that looks like the letter l

Is it possible to calculate the measure of elasticity for both the demand and supply curve?

yes