Elasticity

Keeping the concept of elasticity in mind, which of the following products have elastic demand and which have inelastic demand? Physician visits would be considered ___________ demand.

Inelastic

Keeping the concept of elasticity in mind, which of the following products have elastic demand and which have inelastic demand? Tap water would be considered _______ demand.

Inelastic

Suppose the price elasticity of supply has been calculated for LaCroix sparkling water at 1.3 and the price increases by 15%. What would happen to the quantity supplied?

It would increase by 19.5%

Suppose the price elasticity of supply has been calculated as 0.80 for a particular product and the price increases by 5%. What would happen to the quantity supplied?

It would increase by 4%. 0.80=Qs/5%, Qs=0.80*0.05=0.04

Consider a product that has perfectly elastic demand. Which of the following is most likely to be true about the price elasticity of demand?

The computed elasticity is infinite.

A smoker who is willing to pay whatever it takes to support a smoking habit likely has ________ demand.

inelastic

An addicted smoker likely has which type of demand?

inelastic

Slope and elasticity have different calculations and different meanings. The difference is that elasticity

is the percentage change between two variables and slope is the change between two variables.

All price elasticities of demand have a negative sign which reflects the inverse relationship of the

law of demand

midpoint method

measures the average elasticity over some part of the demand (or supply) curve

If you divide the change in quantity demanded by the initial quantity, you are calculating the (point approach)

percentage change

price elasticity of supply

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

When the quantity demanded for a product does not fluctuate when there is a change in price, the good is ________.

perfectly inelastic

If a change in price creates a larger change in quantity demanded, then we would say that the demand is

price elastic

When the local grocery store puts laundry detergent on sale, reducing its price from $4.20 per item to $3.70 per item, the quantity sold increases from 220 per week to 230 per week. This response illustrates which of the following concepts?

price elasticity of demand

If a large change in price results in a small change in quantity demanded, then demand is

price inelastic

Supply is described as elastic if the percentage change in quantity supplied is ________ to the percentage change in price.

relatively responsive

Elastic supply occurs if the change in quantity supplied is ________ a change in price.

relatively responsive to

unitary elastic supply

supply responds exactly proportionately to a change in price; i.e. the percent change in quantity supplied is equal to the percent change in price

inelastic supply

supply responds less than proportionately to a change in price; i.e. the percent change in quantity supplied is less than percent change in price

elastic supply

supply responds more than proportionately to a change in price; i.e. the percent change in quantity supplied is greater than percent change in price

more elastic

the calculated elasticity is greater in absolute value, meaning the quantity response is greater to the same change in price

Now let's look at the second part of the formula. How do we find the percentage change in price using the midpoint formula?

the change in price divided by the average price, multiplied by 100

Let's look at the first part of the formula. How do we find the percentage change in quantity using the midpoint formula?

the change in quantity divided by the average quantity, multiplied by 100

The price elasticity of demand is zero and the demand curve is vertical when

the demand is perfectly inelastic.

What does this concept represent?

the percentage change in quantity demanded divided by the percentage change in price

The price elasticity of demand is defined as

the percentage change in quantity demanded divided by the percentage change in price.

The price elasticity of supply is defined as the

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

Which of the following factors does NOT influence the price elasticity of demand of a product?

the slope of the supply curve

When elasticity of demand is equal to one, the change in the quantity demanded and the change in price are exactly proportional. This type of elasticity is described as ________.

unitary elastic

unitary elasticity

when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied

Elastic Supply

when the calculated elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

inelastic supply

when the calculated elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)

Finally, using the whole formula, calculate the value of the price elasticity of demand for laundry detergent.price elasticity of demand =

-.35

What is the price elasticity of demand for generic shoes if prices increase by 10% price and quantity demanded of generic shoes decreases by 15%? ________ , which means the demand for generic shoes would be ________.

-1.5; elastic

Now plug in the numbers for P1 and P2 to calculate the percentage change in price.

-12.65

Suppose the price for an Lyft ride in Austin, TX decreases from $15 to $12 causing the quantity of rides demanded to increase from 1000 to 1600. Using the midpoint method, the price elasticity of demand for an Lyft ride is ________.

-2.08

If the price of a product changes by $2 (from $7 to $9) and the quantity demanded changes by 10 units (from 50 to 40 units) then the price elasticity of demand using the midpoint approach is ________.

0.89

Suppose a veggie burger goes up in price from $6 to $9. The percentage change or growth rate in price is ________.

3/6 or 50%

Demelza purchased her favorite perfume three months ago, J'adore by Dior, for $75. She logs online to purchase one for her friend's birthday and it is now $100. What is the percentage change in the perfume price? (use the point approach)

33% (75-100)/75=33%

Now calculate the percentage change in quantity demanded by plugging in the numbers for Q1 and Q2.percentage change in quantity demanded =

4.44

Sylvia's favorite burrito shop raised its prices from $6 to $9. The percentage change in price is (use the point approach)

50%

Using the midpoint method, the price elasticity of demand is determined to be about 0.67. What change in the price would cause a 12% increase in the quantity demanded?

A 17.9% decrease in the price

point elasticity approach

approximate method for solving for elasticity in which the percent changes are measured relative to the initial quantity demanded and price; the initial quantity demanded is subtracted from the new quantity demanded, then divided by the initial quantity demanded; similarly, the initial price is subtracted from the new price, then divided by the initial price.

Demand is relatively inelastic if ________.

buyers do not respond much to a change in price

A life sustaining medicine would most likely have a price elasticity of demand ________.

close to zero

A negative cross-price elasticity of demand between two products would indicate they are

complements

The price of a Pop Socket is $10.00, and the quantity demanded is 5,000 per day. When the price falls to $8.00, the quantity demanded increases to 7,000 per day. Based on this information and using the midpoint method, the demand for Pop Sockets must be ________.

elastic

Although slightly more complicated to calculate, one reason the midpoint (arc) elasticity approach is considered more accurate is that it

gives the same answer regardless of which price and which quantity should be in the denominator.

Suppose you buy a new car instead of a used car when your income rises. This implies the

income elasticity of demand for the used car is negative

Keeping the concept of elasticity in mind, which of the following products have elastic demand and which have inelastic demand? Automobiles would be considered _________ demand.

Elastic

Keeping the concept of elasticity in mind, which of the following products have elastic demand and which have inelastic demand? Restaurant meals would be considered _________ demand.

Elastic

Which of the following questions would be asked by an economist studying elasticity?

How responsive are consumers and producers to changes in price?

midpoint elasticity approach

Most accurate approach to solving for elasticity in which the percent changes in quantity demanded and price are measured relative to the average quantity demanded and price; the initial quantity demand is subtracted from the new quantity demanded; then divided by the average of the two quantities demanded; similarly, the initial price is subtracted from the new price, then divided by the average of the two prices

If the price of both organic eggs and non-organic eggs increases, which one would have the highest responsiveness of quantity demanded to this change in price?

Organic eggs

Which product would have the greatest decrease in quantity demanded (be the most elastic) after a price increase?

Organic whole chicken

If product X's price increases from $400 to $450 and product Y's quantity demanded increases from 15 to 20. Using the midpoint method, calculate the cross price elasticity of demand. Are they substitutes or complements?

The cross-price elasticity of demand is 2.43 and they are substitutes.

Consider that your income has increased this year from $50,000 to $60,000. You bought 3 pairs of designer jeans last year and decide to purchase 5 pairs this year. Keeping all other factors the same, which statement is correct regarding your income elasticity of demand and the designer jeans?

The income elasticity of demand is 2.75 and the designer jeans are considered a normal good

Which of the following items is most likely to have price elasticity of demand above 1.0?

airline tickets

Which of the following describes a product with an inelastic demand?

an appointment with a medical specialist

elasticity

an economics concept that measures responsiveness of one variable to changes in another variable

How do we express this using the variables P1 (original price) and P2 (new price)?

[P2−P1/(P2+P1)÷2]×100

How do we express the percentage change in quantity using the variables Q1 (original quantity) and Q2 (new quantity)?

[Q2−Q1/(Q2+Q1)÷2]×100

elastic demand

a high responsiveness of quantity demanded or supplied to changes in price

inelastic demand

a low responsiveness by consumers to price changes

If wages increase by 10%, a(n) ________ worker is likely to supply 7% more labor because elasticity of labor supply is assumed to be ________.

adult; inelastic