chp 4 Elasticity

Question 1

inelastic demand

Answer 1

Qd does not respond strongly to changes in P
Ep<1 STEEP D CURVE
Goods we have to buy no matter what the P (water, electricity)

Question 2

Elastic Demand

Answer 2

Qd respondS strongly to changes in P
Ep>1 FLATTER D CURVE
Goods that have substitutions

Question 3

Perfectly Inelastic Demand

Answer 3

Qd has no response to changes in P
Ep=0 VERTICAL D CURVE
ex. heart medication

Question 4

Perfectly Elastic Demand

Answer 4

Qd responds to much change
Ep=infinity HORIZONTAL D CURVE
ex. wheat

Question 5

Unit Elastic Demand

Answer 5

Qd changes by the same % as P

Ep=1 Demand curve in non-linear

Question 6

Elasticity of Demand formula EP

Answer 6

Ep= %change in Q / %change in P

TO FIND %CHANGE: NEW VALUE-OLD VALUE / OLD Value

Question 7

Point Elasticity of Demand Formula EP

Answer 7

Ep= (change in Q x change in P THIS IS ALSO THE SLOPE OF THE DEMAND EQUATION) / (P/Q)
ex. what is point elasticity of demand when p=$15
Qd=200-3P
Qd=200-3(15)= 155
Ep=(-3)(15/155)

Question 8

Elastic demand goods

Answer 8

Luxury goods, substitutes, high amount of money, narrowly defined goods

Question 9

Total Revenue Def and Formula

Answer 9

Amount of money a firm receives for the sale of its output

TR=(P)(Q sold)

Question 10

TR if demand is Elastic

Answer 10

lower price will attract more buyers and total sales will increase when P is smaller than Q TR HURTS

Question 11

Tr if demand is inelastic

Answer 11

higher price will still attract costumers and total sales will increase (ex electricity)
when p is larger than Q TR BENEFITS

Question 12

Income Elasticity Demand EN Formula

Answer 12

change in consumers income
EN=%change in Qd / %change in EN
again first do new-old/old for qd then same for income to get %change then divide them using EN formula

Question 13

EN when is it a norm, infer elastic or inelastic

Answer 13

if EN>0 GOOD IS NORMAL N&Qd increase
if EN<0 GOOD IS INFERIOR N decr. Qd incr.
If EN between -1 and 1 INELASTIC (ex.necessities food)
if EN above 1 or below -1 ELASTIC (ex luxury car)

Question 14

Cross-Price Elasticity Demand Eab

Answer 14

measures response of Qd of good a to a change in price in good b
Eab=%change in Qda / %change in Pb (use new-old/old again)
Eab>0 goods are substitutes both Qda and Pb will increase
Eab<0 goods are complements increase in Pb will decr Qda

Question 15

Elasticity of Supply Es

Answer 15

Es= %change in Qs / %change in P

Es will always be >0

Question 16

Perfectly inelastic supply

Answer 16

Es=0
ex Rare art, agricultural products
Supply CURVE IS VERTICAL

Question 17

Inelastic Supply

Answer 17

Es between 0-1
ex lakefront property
S CURVE IS STEEP

Question 18

Elastic Supply

Answer 18

Es>1
ex most manufactures
S CURVE IS FLATTER

Question 19

Perfectly Elastic Supply

Answer 19

Es=infinity
S CURVE IS HORIZONTAL
ex any good for which a decr. in P means a firm will not supply anymore because they’ll lose $

Question 20

Unit Elastic Supply

Answer 20

Es=1
regular looking s curve
ex. same %change in Qd and P

Question 21

what determines Qs

Answer 21

Time (high elastic in long run) ex you can expand a classroom over time in long run