Elasticity

determinants of the elasticity of demand

-Availability of substitutes, -degree of necessity -the proportion of a purchases's budget consumed by the item -time period involved -brand loyalty -who's paying

characteristics of elastic items

-items not usually a necessity - market is competitive with many substitutes/alternatives

ranges for elasticity

0-.5 inelastic .5-1.5 unitary elastic 1.5 and up very elastic

Elasticity

The degree to which buyers and sellers respond to price changes.

true or false? Other things equal, more revenue can be raised by taxing a good that has an inelastic demand than a good that has a more elastic demand.

True

if the quantity demanded is likely to be less responsive to price changes, the good in question is likely to be

a necessity

determinants of the elasticity of supply

availability of the inputs needed for production available production capacity time period required to produce more of the good or service

which of the following would likely have the most inelastic demand? a. seven-up b. gasoline c. generic brand margarine d. a big mac

b. gasoline

A person who has an addiction for a product will have what kind of elasticity of demand for that product?

inelastic demand

characteristics of elastic items

items are high demand typically a necessity

if scientists discover alternative ways of powering automobiles and markets are created for these alternative fuels, the demand of gasoline in the long-run is going to become

more elastic

the elasticity of demand measures the responsiveness of:

quantity demanded to price change

The elasticity of supply measures the responsiveness of

quantity supplied to price change

if as small percentage increase in the price of a good results in a large percentage reduction in the quantity demanded of the good, then demand is said to be

relatively elastic

if the quantity demanded increases by 20% in response to a 20% decrease in price, demand is classified as

unit elastic