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Microeconomics > Chapter 5 - Elasticity and Its Application > Flashcards

Chapter 5 - Elasticity and Its Application Flashcards

(55 cards)

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1
Q

What is the measure of how much buyers and sellers respond to changes in market conditions?

A

Elasticity

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2
Q

Economists use the concept of elasticity to measure what?

A

How much consumers respond to changes in price & income

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3
Q

What measures how much the quantity demanded of a good responds to a change in the price of that good?

A

The Price Elasticity of Demand

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4
Q

What is the formula for price elasticity of demand?

A

% change in quantity demanded/ % change in price

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5
Q

When quantity demanded responds substantially to changes in price is demand elastic or inelastic?

A

Elastic

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6
Q

When quantity demanded responds only slightly to changes in price is demand elastic or inelastic?

A

Inelastic

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7
Q

List the 4 things that can influence the price elasticity of demand

A
  1. Availability of close substitutes
  2. Necessities vs. luxuries
  3. The definition of the market
  4. Time horizon
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8
Q

Why do goods with close substitutes tend to have more elastic demand?

A

It’s easier for consumers to switch from one good to another

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9
Q

Do necessities tend to have elastic demands or inelastic demands?

A

Inelastic demands

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10
Q

Do luxuries tend to have elastic demands or inelastic demands?

A

Elastic demands

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11
Q

Do narrowly defined markets or broadly defined markets tend to have more elastic demand?

A

Narrowly defined markets

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12
Q

Do goods tend to have more elastic demands over long periods of time or short periods of time?

A

Long periods of time

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13
Q

What computes a percentage change by dividing the change by the midpoint of the initial and final levels?

A

The midpoint method

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14
Q

What is the midpoint method formula?

A

(P2 - P1) / [(P2 + P1) / 2]

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15
Q

What do economists classify demand curves by?

A

Their elasticities

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16
Q

Fill in the Blank:

Demand and Supply are _______ when price elasticity > 1

A

Elastic

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17
Q

Fill in the Blank:

When demand is elastic quantity moves a lot _____ than price

A

More

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18
Q

Fill in the Blank:

Demand and supply are ______ when price elasticity < 1

A

Inelastic

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19
Q

Fill in the Blank:

When demand is inelastic quantity moves a lot _____ than price

A

Less

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20
Q

Fill in the Blank:

Demand and supply have _____ when price elasticity = 1

A

Unit elasticity

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21
Q

Fill in the Blank:

When demand has unit elasticity the percentage change in quantity _____ the percentage change in price

A

Equals

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22
Q

Fill in the Blank:

Demand and supply are ______ when price elasticity = 0

A

Perfectly inelastic

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23
Q

What does the demand curve look like when demand is perfectly inelastic?

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A

A vertical line

24
Q

Fill in the Blank:

Demand and supply are ______ when price elasticity = infinity

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A

Perfectly elastic

25
What does the demand curve look like when demand is perfectly elastic?
A horizontal line
26
True or False: The flatter the demand curve the greater the price elasticity of demand
True
27
What is the amount paid by buyers and received by sellers of a good?
Total revenue
28
What's the formula for total revenue?
Total revenue = Price of good x quantity sold
29
True or False: Total revenue doesn't change as one moves along the demand curve
False
30
What does the supply curve look like when supply is perfectly inelastic?
A vertical line
31
What does the supply curve look like when supply is perfectly elastic?
A horizontal line
32
# Fill in the Blank: For a price increase, if demand is elastic then true revenue ________
Decreases
33
# Fill in the Blank: For a price increase, if demand is inelastic then true revenue ________
Increases
34
If demand is inelastic, does the price and true revenue move in the same direction or opposite directions?
The same direction
35
If demand is elastic, does the price and true revenue move in the same direction or opposite directions?
Opposite directions
36
True or False: If the demand curve is unit elastic then total revenue remains the same when the price changes
True
37
What measures how much the quantity demanded of a good responds to a change in consumers’ income?
The income elasticity of demand
38
What is the formula for income elasticity of demand?
% change in quantity demanded / % change in income
39
Do necessities or luxuries have small income elasticities?
Necessities
40
Do necessities or luxuries have large income elasticities?
Luxuries
41
What measures how much the quantity demanded of one good responds to a change in the price of another good?
The cross-price elasticity of demand
42
What is the formula for cross-price elasticity of demand?
% change of quantity demanded of good 1 / % change in the price of good 2
43
True or False: Whether the cross-price elasticity is a positive or negative number depends on whether the two goods are substitutes or complements
True
44
What are good that are typically used in place of one another?
Substitutes
45
Do substitutes have a positive or negative cross-price elasticity?
A positive
46
What are goods that are typically used together?
Complements
47
Do complements have a positive or negative cross-price elasticity?
A negative
48
What measures how much the quantity supplied of a good responds to a change in the price of that good?
The price elasticity of supply
49
What is the formula for the price elasticity of supply?
% change in quantity supplied / % change in price
50
When quantity supplied responds substantially to changes in the price is supply elastic or inelastic?
Elastic
51
When quantity supplied responds slightly to changes in the price is supply elastic or inelastic?
Inelastic
52
What is a key determinant of the price elasticity of supply?
The time period
53
Is supply more elastic in the long run or the short run?
The long run
54
True or False: The price elasticity of supply depends on the flexibility of sellers to change the amount of the good they produce
True
55
As elasticity rises the supply curve gets flatter, what does this show?
That the quantity supplied responds more to changes in the price

Microeconomics (8 decks)

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