Module 5: Price Elasticity or Demand and Supply

Using absolute values, and the inelastic range of the demand curve:

% change in quantity demanded < % change in price.

Using absolute values, and the elastic range of the demand curve:

% change in quantity demanded > % change in price.

The more _______________ a market is defined, the fewer reasonable substitute will be available

Broadly

Whether a good or a service is a luxury or a necessity is determined by the _____________.

Buyer

In the ____________ range of the demand curve, the percentage change in quantity demanded is greater than the percentage change in price.

Elastic

The effect of policies will change over time as supply becomes relatively more _____________.

Elastic

The more a good or a service is considered to be a luxury, the relatively more _______________ demand will be.

Elastic

The more broadly a market is defined, the ___________ reasonable substitute will be available.

Fewer

The price elasticity of demand is often turned into a positive number to:

Identify whether the demand is elastic, and elastic, or unit patient elastic.

If demand is elastic, _____________ prices will decrease total revenue.

Increasing

If demand is ____________, increasing prices will increase total revenue

Inelastic

If |Ed|= 0.15, the demand is:

Inelastic

When demand is inelastic, consumers are _________ responsive to changes in prices.

Less

Total revenue is equal to:

Price times quantity

When the proportion of income spent on a good or service is relatively _______________, demand is relatively more inelastic.

Small

The time periods associated with a set of supply curves include:

The immediate period, The long run, and the short run.

Long run

The time period in which all inputs of production are variable and no input is fixed

When demand is inelastic:

• it is harder for firms to lower prices to increase total revenue. When demand is in elastic, consumers or not responsive to price changes, so lower price would decrease total revenue. • it is easier for firms to raise prices to increase total revenue.