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Flashcards in Chapter 5 Mire Notes Deck (24):
1

Does the law of demand have a negative relationship or positive relationship between price and quantity demanded

Negative

2

What happens to total revenue as you move down the slope

Two things happen

Total revenue first increases then it reaches a maximum and then it starts to decrease

The quantity demanded continues to increase are you move down the slope

3

What is income elasticity

Extent to which consumer purchases respond to a change in consumer income

4

What is the formula for income elasticity of demand

Percent change in quantity demanded / percent change in income

5

Does demand in income always move in the same direction

No

6

With regards to income elasticity but two types of goods could you have

1. Inferior good

2. Normal good

7

Describe an inferior good what happens when income increases

When income increases it leads to a decrease in quantity demanded

8

Is an inferior good positive or negative income elasticity of demand

Negative income elasticity of demand

9

What is the relationship of a normal good with regards to income elasticity

Demand and income are positive

The demand increases when income increases

10

What type of good has a positive income elasticity of demand

A normal good

11

If the positive income elasticity of demand is greater than one what type of good is this

It is a luxury good or a superior good

12

If the positive income elasticity of demand is less than one what type of good is this

Necessity good

13

What if an income elasticity of demand is zero

Income is not associated with the change in the demand of a good

14

What does cross elasticity of demand measure

It measures the degree of responsiveness in the quantity demanded of one good in response to a change in price of another good

15

What is the formula for cross price elasticity of demand

Percent change in quantity demanded of good 1 / percent change in price of good 2

16

What is meant when they have a high positive cross price elasticity

They are substitutes

The demand for both goods moves opposite directions

17

What is meant when you have a negative cross price elasticity

The goods are complements

When price falls, demand for both goods increase

They move in the same direction

18

With regards to cross price elasticity of demand zero represents what

Goods are independent of each other

19

If cross price elasticity is greater than zero what does this mean

The two goods are substitutes

20

If the cross price elasticity of demand is less than zero what are the goods

Complements

They have a negative relationship

21

If the cross price elasticity of demand is more than zero what are they

They are substitutes

They have a positive relationship

22

If crawlspace elasticity is zero then what are the goods

The goods are independent

23

If cross price elasticity is less than zero what are the goods

Compliments

24

What does price elasticity and total revenue explain

Hello my total expenditure varies along the market demand curve