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Microeconomics > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Responsive demand

A

A small change in price will likely cause many people to switch from one good to another

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2
Q

Unresponsive demand

A

Consumer’s an unwilling to change their behavior even when the price of a good or service changes.

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3
Q

Elasticity

A

A measure of the responsiveness of buyers and sellers to changes in price or income.

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4
Q

The price elasticity of demand

A

Measures the responsiveness of quantity demanded in a change in price.

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5
Q

Elastic

A

Quantity demanded changes significantly as as result of price changes.

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6
Q

Inelastic

A

Quantity demanded changes a small amount as a result of price changes.

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7
Q

What are the five determinants that pay a role in elasticity of demand?

A

1) The existence of substitutes. 2) The share of a budget of spend good. 3) Whether the good is a necessity or a luxury good. 4) How broadly defined the market is. 5) Time

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8
Q

T/F Whether demand is elastic or inelastic depends on the buyer’s preferences and resources

A

True.

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9
Q

Why is the share of a budge spend on a good important for elasticity?

A

On a big ticket item a small discount can amount to a significant amount of money. Think of your oled tv.

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10
Q

The existence of substitues

A

Most important factor for price elasticity of demand. If there are many substitutes for a good a price change in one could result in consumers switching to another good.

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11
Q

Whether the market is broadly or narrowly defined.

A

It is possible for the particulars of a market to be elastic while the market on the whole has elastic demand or vice versa. For instance the demand for a particular demand may be price sensitive, while demand for housing as a whole is inelastic.

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12
Q

Immediate Run

A

No time for consumers to adjust their behavior

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13
Q

Short run

A

Consumers can partially adjust their behavior

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14
Q

Long run

A

Consumers have time to fully adjust their behavior. Make decisions that reflect our wants, needs, and limitations of a long-time horizon.

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15
Q

Elasticity of Demand formula

A

Price Elasticity of Demand (Percentage change in the quantity demanded)/(Percentage change in price)

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16
Q

Midpoint Method

A

Avoid the reference point problem by comparing the change in price and quantity demanded to the average value of the quantity demanded and price.

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17
Q

Midpoint Method Formula

A

Elasticity of Demand (change in Q/average value of Q)/(change in P/average value of P)

18
Q

Calculate the elasticity of demand using the midpoint formula for the following:
Price QD
12 20
6 30

A

-.60

19
Q

Perfectly Inelastic demand

A

0/percentage change in price Vertical line on the graph

20
Q

Relatively inelastic demand

A

small change/large change. Vertical line sloping slightly towards the right.

21
Q

Relatively Elastic

A

Large Change/ small change. Horizontal line sloping downward a little.

22
Q

Perfectly Elastic Demand

A

nearly infinite change/ very small change. Horizontal line.

23
Q

Unitary Elasticity

A

Shift in price=shift in quantity demanded Ed=-1

24
Q

How does time affect elasticity?

A

In the immediate run, consumers cannot make changes to their consumption for inelastic goods, but in the short run, and long run they can adjust their behavior.

25
Q

How does demand change in elasticity as price decreases?

A

At high prices, demand is very elastic, but at lower and lower prices, demand is increasingly inelastic.

26
Q

Total revenue

A

The mount that a firm receives from the sale of goods and services. Total revenue=price * quantity.

27
Q

Income elasticity of demand

A

Measures how change in come affects spending. E1= percentage change in quantity demanded/percentage change in income.

28
Q

T/F Income elasticity of demand can be positive or negative?

A

True.

29
Q

Normal Goods

A

When a higher level of income enables a consumer to purchase more of a good.

30
Q

Necessity Elasticity

A

Elasticity between 0 and 1

31
Q

Luxury Elasticity

A

Greater than 1

32
Q

Inferior Goods

A

Goods that we choose not to purchase as our income goes up.

33
Q

Cross-price Elasticity of Demand

A

Measures the responsiveness of the quantity demanded of one good to a change in the price of a related good.
Ec= (percentage change in quantity demanded of one good)/(percentage change in price of a related good)

34
Q

Cross Price Elasticity of Substitutes, no relationship, and Complementary good

A

Substitutes- EC is greater than 1 More consumption
No relationship Ec=0 No change
Complements EC is less than 0 Less consumption

35
Q

Calculate the cross-price elasticity of demand for the following: Suppose that the price of a 2-liter bottle of Mr. Pibb falls from 1.49 to 1.29. In the week following the change, a local sore sells 80 boxes (from 60 the previous week). Calculate the cross price elasticity of demand.

A

-1.99

36
Q

Price elasticity of supply

A

A measure of responsiveness of the quantity supplied to the change in price.

37
Q

What are the key factors in the price elasticity of supply?

A

1) The flexibility of produces.

2) Time and the adjustment process

38
Q

List the Coefficient for the following price elasticity of supply
Perfectly Inelastic
Relatively Inelastic
Relatively elastic

A

Perfectly inelastic Es=0

Relatively inelastic 01

39
Q

What are ways producers can remain elastic?

A

1) Have excess production capacity

2) Stockpile the good.

40
Q

What happens with price elasticity of supply over time?

A

becomes more elastic over time as producers have more capacity to adjust to increases in demand.

41
Q

Suppose that the price of a barrel of oil increases from 50 to 100 dollars. The new output is 2 million barrels per day and the old output is 1.8 million barrels per day. What is the price elasticity of supply? Is this elastic or inelastic?

A

Es-.16 Relatively inelastic.

42
Q

Formula for price elasticity of supply

A

Es= percentage change in quantity supplied/ percentage change in price.

Microeconomics (12 decks)

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