elasticity

Question 1

what is price elasticity of demand?

Answer 1

measures how sensitive is the quantity demanded to a change in price

Price elasticity of demand = percentage change in quantity/ demanded percentage change in price

Question 2

what is inelastic demand?

Answer 2

qty demanded is insensitive to a change in price

Question 3

how to calculate the elasticity of demand coefficient?

Answer 3

% change in qty / % change in price

Question 4

what is elastic demand?

Answer 4

qty demanded is sensitive to a change in price

Question 5

what is the elasticity of demand coefficient = 1?

e.g. 20% decrease/ 20% increase = 1

Answer 5

this product has unit elastic demand

Question 6

what kind of elasticity does a vertical line have?

Answer 6

perfectly inelastic demand

where % change in qty (0) / % change in price = 0

Price changes have no influence on qty

Question 7

what kind of elasticity does a horizontal line have?

Answer 7

product has perfectly elastic demand

firm cannot change the price at all.

Therefore,

% change in qty / % change in price (0) = infinity

Question 8

what are the different kind of elasticities? What are the elasticity coefficients?

Answer 8

Question 9

how do you calculate the total revenue?

Answer 9

price x qty

Question 10

what test can you use to test elasticity?

Answer 10

the total revenue test

Question 11

what can you deduce from the total revenue test?

Answer 11

Question 12

what is the elasticity of supply

Answer 12

how sensitive is the qty supplied to a change in price

Question 13

what is inelastic supply?

Answer 13

qty supplied is insensitive to a change in price

(e.g. electricity in the short run)

Question 14

what is elastic supply?

Answer 14

sensitive to changes in price

easy to produce more

Question 15

cross-price elasticity of demand

Answer 15

how sensitive the qty of one product is to a change in the price of a different product

these products are either substitutes or complements

Question 16

what can you conclude from cross-elasticity of demand?

Answer 16

Question 17

what does income elasticity of demand show?

Answer 17

how sensitivity the qty of demand for a product is to a change in income

Question 18

how to calculate income elasticity of demand?

Answer 18

% change in qty/ % change in income

Question 19

how does supply impact influence elastic and inelastic demand graphs?

Answer 19

High price elasticity of demand: decrease in supply –> small rise in price

Low price elasticity of demand: decrease in supply –> big rise in price

Question 20

why is a large increase in price needed where there is low elasticity of demand when there is a change in supply?

Answer 20

when the elasticity is very low, a large increase in price is needed to get people to reduce their use of a good and bring the quantity demanded down to the quantity supplied.

Question 21

why is there only a small rise in price in a case where there is high elasticity of demand when there is a change in supply?

Answer 21

when the elasticity is very high, then only a small increase in the price is enough to get people to reduce their use of a certain product and thereby bring the quantity demanded down to the lower quantity supplied.

Question 22

A given shift of the supply curve will have a larger impact on

Answer 22

equilibrium quantity (and a smaller impact on equilibrium price) when the elasticity of demand is higher.

Question 23

Answer 23

Question 24

What is the arc elasticity of demand?

Answer 24

Question 25

apply the arc elasticity of demand

Answer 25

Question 26

different types of elasticities and the elasticity of demand coefficients

Answer 26

Question 27

how can elasticity affect revenue?

Answer 27

Question 28

what does an increase in price and the effect it has on revenue look like?

Answer 28

Question 29

when elasticity is greater than 1 when elasticis is less than 1

Answer 29

Question 30

what influences price elasticitiy of demand?

Answer 30

1. degree of substitutability (this may be influenced by necessity or luxury) 2. necessity or luxury 3. fraction of income 4. temporary v permanent (**discounts will increase price elasticity of demand**) 5. Long-Run versus Short-Run Elasticity

Question 31

describe how the time after the price change can influence the price elasticity of demand?

Answer 31

**Frequently** the price elasticity of demand is low immediately after a price change (**people have not adjusted or it may be difficult to break habits** (increase in tobacco price)) but then increases after a period of time has passed. (**enough time to make adjustments or change habits**)

Question 32

Whereas the price elasticity of demand refer to \_\_\_\_\_\_, the income elasticity of demand refers to

Answer 32

Whereas the price elasticity of demand refers to movements along the demand curve, the income elasticity of demand refers to shifts in the demand curve caused by changes in income.

Question 33

distinguish between high and low price elasticities of supply

Answer 33

A high price elasticity of supply means that firms **raise their production by a large amount if the price increases.** (qty very responsive to price change) A low price elasticity of supply means that **firms raise their production only a little if the price increases. (**qty supplied insensitive to price change)

Question 34

how do you calculate the price elasticity of supply

Answer 34

Question 35

what is perfectly elastic supply?

Answer 35

the price does not change at all. It is the same regardless of the quantity supplied. a **_small increase in price_** brings forth a **huge increase in the quantity** supplied by firm

Question 36

what is perfectly inelastic supply?

Answer 36

The vertical supply curve is perfectly inelastic; it has zero elasticity. indicating **_no response of quantity_** supplied to a change in price For example, there is only one Mona Lisa. **A higher price cannot bring about a higher quantity supplied**

Question 37

describe how different price elasticities of supply will respond to a shift to demand

Answer 37

If the price elasticity of supply is high, there will be **a small change in price.** If the price elasticity of supply is low, there will be **a large change in price.**

Question 38

luxury goods have

Answer 38

Question 39

what are determinants of supply elasticity?

Answer 39

1. ease at which suppliers can increase output i.e. capacity constraints 2. supply is usually more price sensitive over time

Question 40

when to use the arc elasticity of demand?

Answer 40

when there is a large change in price

Question 41

what is another way to express elasticity of demand?

Answer 41

slope = m

Question 42

when to use the point elasticity of demand?

Answer 42

when there is a small change in price

Question 43

y=mx + b also is

Answer 43

P = mQ_D + B

Question 44

what happens to revenue

Answer 44

Question 45

if elastic

Answer 45

Question 46

cross price elasticity of demand

Answer 46

Question 47

elasticity

Answer 47

Inferior goods \< 0 normal goods \> 0 * necessity * luxury\>1