Flashcards in Chapter 4 - Elasticity Deck (53)

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1

## elastic demand def

### qt demanded very responsive to change in products price

2

## inelastic demand def

### qt demanded is very unresponsive to change in products price

3

## Elasticity is related to the _______ of the _______ curve but ________

### slope. demand. not exactly the same

4

## Conditions to do comparison of elasticity of 2 demand curves - with respect to a shift in supply (2) and what if conditions not met

###
1) 2 figures drawn on same scale

2) Start from same price-quantity equilibrium

otherwise, need % change in price and qts of products

5

## elasticity symbol

### η (eta)

6

## How to determine elasticity of demand at a particular point in demand curve

###
1) This point is (Qd bar, p bar) bar = fix. 2) Choose a point above and a point below (q1,p1) and (q2,p2)

3) η = delta Q / Q bar divided by delta P / P bar

7

## sign of η and what economists do

### negative. economists emphasize absolute value

8

## Actual η formula considering that the middle point is the average of the two points around

### η = (Q1 - Q0)/(Q1 + Q0) divided by (P1 - P0)/(P1 + P0)

9

## Other way of writing the η formula and what first part is

### η = delta Q/delta P multiplied by P bar / Q bar. First part is reciprocal (inverse) of the slope

10

## How elasticity behaves along a linear demand curve

### falls down as you move down linear demand curve

11

## 5 points/regions important on linear demand curve

### 1) Top : η =infinity, Perfectly elastic 2) Elastic η>1 3) Unit elastic η=1 4) Inelastic η<1 5) Perfectly inelastic η=0

12

## Which of the 5 points/regions important on linear demand curve will producers try to reach and why

### Unit elastic point (η=1) to maximize expenditure

13

## 3 demand curves with constant elasticity

### Vertical, horizontal and hyperbol for which demand*price is constant (p=a/q)

14

## Horizontal curve elasticity and value

### Perfectly elastic (η=infinity - REMEMBER IT IS THE RECIPROCAL OF THE SLOPE)

15

## Vertical curve elasticity and value

### Perfectly inelastic (η=0)

16

## Hyperbol curve (p=a/q) elasticity value

### elasticity = 1

17

## Linear demand slope and elasticity

### constant slope (constant relation of changes in P and Q) and different elasticities

18

## Non-linear demand curve

### not constant slope (relation of changes in P and Q changes) and elasticities may vary along the curve

19

## what determines elasticity of demand

### Availability of substitutes.

20

## when is demand elasticity high

### when there are many close substitutes

21

## what determines availability of substitutes (3)

###
1) length of the time interval considered (time given to consumer to react)

2) wether the good is a necessity or a luxury

2) how specifically the product is defined

22

## Short run vs long-run equilibrium following an increase in supply

### in the long run, demand is more elastic. demand turns along the initial equilibrium point

23

## narrowly defined products demand elasticity

### more elastic demand (can be replaced easily)

24

## What total expenditure depends on

### relative changes in price and quantity

25

## Total expenditure formula

### Price x quantity

26

## Total expenditure behavior when elastic demand (η > 1)

### Higher price = smaller TE, lower price = higher TE

27

## Total expenditure behavior when inelastic demand (η

### Higher price = higher TE, lower price = lower TE

28

## where total expenditure reaches a maximum

### when demand is unit elastic (η = 1)

29

## price elasticity of supply ηs formula

### delta Q supplied / average Q supplied divided by delta price / average price

30