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Questions and Answers
What happens to equilibrium price and quantity sold when demand becomes more elastic?
What happens to equilibrium price and quantity sold when demand becomes more elastic?
- Price decreases and quantity sold remains constant.
- Price remains constant and quantity sold remains constant.
- Price decreases and quantity sold increases. (correct)
- Price increases and quantity sold decreases.
How is the coefficient of income elasticity calculated?
How is the coefficient of income elasticity calculated?
- By dividing percentage change in income by percentage change in quantity.
- By subtracting the percentage change in quantity from the percentage change in income.
- By multiplying percentage change in quantity by percentage change in income.
- By dividing the percentage change in quantity by the percentage change in income. (correct)
Which statement is true regarding the effects of less elastic supply?
Which statement is true regarding the effects of less elastic supply?
- It has no impact on prices or quantities sold.
- It results in lower prices and higher quantity sold.
- It results in constant prices and quantity sold.
- It results in higher prices and lower quantity sold. (correct)
What does the coefficient of cross elasticity of demand measure?
What does the coefficient of cross elasticity of demand measure?
In which scenario would a product typically have a negative cross elasticity of demand?
In which scenario would a product typically have a negative cross elasticity of demand?
What does price elasticity measure?
What does price elasticity measure?
Which scenario best exemplifies inelastic demand?
Which scenario best exemplifies inelastic demand?
What characterizes perfectly inelastic demand?
What characterizes perfectly inelastic demand?
If the price elasticity coefficient is greater than 1, how is the demand described?
If the price elasticity coefficient is greater than 1, how is the demand described?
What is an example of a good with elastic demand?
What is an example of a good with elastic demand?
Which type of elasticity occurs when quantity demanded changes proportionally to the change in price?
Which type of elasticity occurs when quantity demanded changes proportionally to the change in price?
Cross elasticity of demand measures the relationship between what two factors?
Cross elasticity of demand measures the relationship between what two factors?
If the demand for a product is described as elastic, what does this imply regarding price changes?
If the demand for a product is described as elastic, what does this imply regarding price changes?
Flashcards
Elasticity
Elasticity
Responsiveness of demand and supply to price and other changes.
Price Elasticity
Price Elasticity
Percentage change in quantity demanded relative to a percentage change in price.
Elastic Demand
Elastic Demand
Demand changes more than proportionally when price changes (coefficient > 1).
Inelastic Demand
Inelastic Demand
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Unitary Elasticity
Unitary Elasticity
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Perfectly Elastic
Perfectly Elastic
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Perfectly Inelastic
Perfectly Inelastic
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Income Elasticity
Income Elasticity
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Normal Good
Normal Good
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Inferior Good
Inferior Good
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Cross Elasticity
Cross Elasticity
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Substitutes
Substitutes
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Complements
Complements
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Supply Elasticity
Supply Elasticity
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Elastic Supply
Elastic Supply
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Inelastic Supply
Inelastic Supply
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Elasticity Coefficient
Elasticity Coefficient
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Effect of Elasticity
Effect of Elasticity
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Demand Elasticity
Demand Elasticity
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Formula Ey
Formula Ey
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Formula Ec
Formula Ec
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Study Notes
Elasticity Overview
- Elasticity measures the responsiveness of demand and supply to changes in price and other determinants.
- Types of elasticity include price elasticity, income elasticity, and cross elasticity.
Price Elasticity
- Price elasticity indicates the percentage change in quantity demanded relative to a percentage change in price.
- Examples:
- Diet coke demand is elastic due to available alternatives.
- Milk demand remains stable despite price increases, showing inelasticity.
- Spa treatments are highly elastic as they are luxuries that consumers can forgo.
Types of Demand Elasticity
- Elastic: Demand changes more than proportionally when price changes (elasticity coefficient > 1).
- Inelastic: Demand changes less than proportionally when price changes (elasticity coefficient < 1).
- Unitary: Demand changes proportionally to price changes (elasticity coefficient = 1).
- Perfectly Elastic: Infinite change in quantity demanded at a specific price level.
- Perfectly Inelastic: No change in quantity demanded regardless of price change.
Effects of Demand Elasticity
- An increase in elasticity leads to a smaller price increase and greater quantity sold.
- A decrease in elasticity results in steeper price increases and lower quantity sold.
Supply Elasticity
- Less elastic supply results in higher price increases and smaller quantity increases.
- More elastic supply yields lower price increases and greater quantity sold.
Income Elasticity
- Measures how quantity demanded changes in response to income changes.
- Formula: ey = Percentage change in quantity / Percentage change in income.
- High income elasticity indicates normal goods; low/income elasticity suggests inferior goods.
Cross Elasticity
- Reflects how the quantity demanded of one good responds to the price change of another good.
- Formula: Ec = Percentage change in quantity demanded of Good A / Percentage change in price of Good B.
- Positive cross elasticity indicates substitutes, while negative values indicate complements.
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