Chapter 6 Flashcards

1
Q

Price elasticity of demand

A

Percentage change in quantity demanded divided by percentage change in price

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2
Q

Elastic

A

Greater than 1

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3
Q

Inelastic

A

Less than 1

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4
Q

Unit-elastic

A

Equals to 1

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5
Q

Perfectly inelastic

A

=0, quantity demanded is unresponsive to price (vertical line)

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6
Q

Perfectly elastic

A

=infinity, quantity demanded is infinitely responsive to price (horizontal line)

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7
Q

Determinants of the price elasticity of demand

A

Availability of close substitutes for the good, the passage of time, whether the good is a luxury or necessity, definition of market , the share of the good in the consumer’s budget

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8
Q

Total revenue

A

(price x quantity)

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9
Q

Relationship between price elasticity of demand and total revenue

A

Inelastic: move in the same direction - Elastic: moves inversely

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10
Q

Cross-price elasticity of demand

A

Price change in quantity demanded of one good divided by percent change in price of another good

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11
Q

Luxury

A

A normal good with a quantity demanded that responds more to percent change

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12
Q

Necessity

A

A normal good with a quantity demanded that responds less to percent change

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