Microeconomics > Week 3 > Flashcards

Week 3 Flashcards

(58 cards)

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0
Q

What are the variables used with elasticity

A

Quantity demanded/supplied

Price

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1
Q

What is elasticity

A

Elasticity looks at how much one economic variable responds to changes in another economic variable

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2
Q

What measurement is used to calculate both price elasticity of supply and demand

A

Percentage changes not units

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3
Q

How is the price elasticity of demand measured

A

% change in quantity demanded divided by percentage change in price

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4
Q

Is the price elasticity of demand the same as the slope of the demand curve

A

No it is not

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5
Q

Is the price elasticity of demand always negative

A

Yes so it is always looked at in absolute terms with the minus sign dropped

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6
Q

What is elastic demand

A

When the % change in quantity demanded is greater then the % change in price

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7
Q

What is the absolute value of elastic demand

A

Over 1

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8
Q

What is inelastic demand

A

When the % change in quantity demanded is less then the % change in price

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9
Q

What is the absolute value of inelastic demand

A

Less then 1

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10
Q

What is unit elastic demand

A

When the % change in demand = the % change in price

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11
Q

What is unit elastic demand in absolute value

A

1

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12
Q

When is the midpoint formula used to calculate price elasticity of demand

A

When there is 2 points on 1 demand curve because 2 points give different answers

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13
Q

What does the midpoint formula use in calculation

A

The average of the initial and final quantity and price

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14
Q

What is the 1st step in the midpoint formula

A

Calculate average quantity and price

Q/P 1 + Q/P 2 divided by 2

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15
Q

What is the 2nd step in the midpoint formula

A

Calculate % change in quantity demanded and price

Q/P 1 - Q/P 2 divided by Average Q/P

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16
Q

What is the 3rd step in the midpoint formula

A

Divide % change in quantity demanded and price to get the price elasticity of demand

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17
Q

When demand curves intersect what is more inelastic the flatter or steeper curve

A

The flatter curve is more inelastic

The steeper curve is more elastic

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18
Q

What is perfectly inelastic demand

A

When the demand curve is a vertical line and price elasticity of demand = 0

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19
Q

What happens with perfectly inelastic demand

A

Quantity demanded is completely unresponsive to price changes

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20
Q

What is perfectly elastic demand

A

The demand curve is a horizontal line and the price elasticity of demand = infinity

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21
Q

What happens with perfectly elastic demand

A

The quantity demanded is infinitely responsive to a change in price

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22
Q

What is the main determinant of price elasticity of demand

A

Availability of close substitutes. More substitutes = more elastic, less substitutes = more inelastic

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23
Q

Does the time it take for consumers to change spending habits influence the income elasticity of demand

Study These Flashcards
A

Yes it does the more time that passes the more elastic the demand for a product will become in the short term it is inelastic

24
If a good is a luxury or a necessity influence the price elasticity of demand (whether a good is elastic or inelastic)
Yes a luxury good is more elastic while a necessity is more inelastic
25
If a market is more narrowly defined does this influence whether a good is elastic or inelastic
Yes a good is more elastic in a narrowly defined market while more inelastic in a broadly defined market
26
Does the share of expenditure in a consumers budget determine whether a good is elastic or inelastic
Yes if sit has a small share it will be inelastic a larger share it will be elastic
27
What is the relationship between price elasticity of demand and total revenue
If a good is inelastic an increase in price will increase revenue and vice versa for a decrease If a good is elastic an increase in price will decrease revenue and vice versa for a decrease
28
Along demand curves is elasticity constant at every point
No at higher prices demand will be more elastic while at lower prices it will be more inelastic
29
What is cross price elasticity
The % change in quantity demanded of one good divided by the % change in the price of another good
30
What does cross price elasticity show
If products are substitutes cross price elasticity will be positive due to interchangeability and if they are complements will be negative due to comparability and if unrelated will be 0
31
What is the income elasticity of demand
Measures the responsiveness of quantity demanded to changes in incomes
32
How is the income elasticity of demand calculated
% change in quantity demanded divided by % change in disposable incomes
33
If income elasticity of demand is more then 1
Good is normal and a luxury
34
If income elasticity of demand is less then 1
Good is normal and a necessity
35
If income elasticity of demand is negative
Inferior good
36
What is the price elasticity of supply
How much suppliers will supply when there is an increase in price
37
How is the price elasticity of supply calculated
% change in quantity supplied divided by % change in price
38
Is the price elasticity of supply always a positive number
Yes
39
When is supply elastic
When price elasticity of supply is more then 1 or when % change in quantity supplied is greater then % change in price
40
When is supply inelastic
When price elasticity of supply is less then 1 or when % change in quantity supplied is less then % change in price
41
When is supply unit elastic
When price elasticity of supply = 1 or when % change in quantity supplied = % change in price
42
What determines whether supply is elastic or inelastic
The ability and willingness of firms to alter the quantity they supply as price increases
43
What is the main determinant of price elasticity of supply
The amount which production costs rise as output levels rise which other determinants are based one
44
If prices increase a large amount as more is produced will supply be elastic or inelastic
Inelastic
45
If prices increase a small amount as more is produced will supply be elastic or inelastic
Elastic
46
Does the length of time involved in altering production affect price elasticity of supply
Yes in the short term most firms are inelastic and elastic in long term but industries like mining are the also inelastic in long term
47
Does the type of industry influence price elasticity of supply
Yes some industries can increase production fast and at low cost while others can not ie manufacturing and mining
48
Does the availability of production inputs affect price elasticity of supply
Yes if more inputs are readily available supply will be elastic if not supply will be inelastic
49
Does existing capacity affect price elasticity of supply
Yes if firms have spare capacity supply will be elastic if not and producing at max output firms will have inelastic supply
50
Do inventories held affect price elasticity of supply
Yes a firm that does or can hold inventory will be supply elastic if not it will be supply inelastic
51
What is perfect inelastic supply
The supply curve is vertical and the price elasticity of supply = 0
52
What does perfect inelastic supply mean
The quantity supplied does not respond at all to changes in price
53
What is perfect elastic supply
If the supply curve is horizontal and the price elasticity of supply = infinity
54
What does perfect elastic supply mean
That the quantity supplied is infinitely responsive to changes in price
55
What determines the amount that price increases when demand increases?
The price elasticity of supply
56
How does the price elasticity of supply determine the amount price will increase from an increase in demand
Inelastic supply = higher price due to limited capacity | Elastic supply = not as large price increase more quantity of what is being sold
57
What is the formula for a % change
New Value - Old Value divided by Old value X 100

Microeconomics (8 decks)

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