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What characteristic defines a good with perfectly inelastic demand?
What characteristic defines a good with perfectly inelastic demand?
What happens to total revenue when demand is elastic and the price decreases?
What happens to total revenue when demand is elastic and the price decreases?
How is unit elastic demand defined?
How is unit elastic demand defined?
In terms of elasticity, what does a price elasticity of demand value greater than 1 indicate?
In terms of elasticity, what does a price elasticity of demand value greater than 1 indicate?
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What is the primary implication of a positive price change in goods with elastic demand?
What is the primary implication of a positive price change in goods with elastic demand?
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Which statement accurately depicts the effect of a decrease in price on total revenue for a good with inelastic demand?
Which statement accurately depicts the effect of a decrease in price on total revenue for a good with inelastic demand?
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When examining the price elasticity of demand, what role do the concepts of average price and average quantity play?
When examining the price elasticity of demand, what role do the concepts of average price and average quantity play?
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What is the significance of using absolute value when calculating price elasticity of demand?
What is the significance of using absolute value when calculating price elasticity of demand?
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What defines a good as having inelastic demand?
What defines a good as having inelastic demand?
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How does a price drop from $25 to $15, resulting in an increase in quantity demanded, affect total revenue if demand is inelastic?
How does a price drop from $25 to $15, resulting in an increase in quantity demanded, affect total revenue if demand is inelastic?
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What does it mean for demand to be unit elastic at a specific price point on a linear demand curve?
What does it mean for demand to be unit elastic at a specific price point on a linear demand curve?
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What is true about demand when the percentage change in quantity demanded is greater than the percentage change in price?
What is true about demand when the percentage change in quantity demanded is greater than the percentage change in price?
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What effect does having a larger proportion of income spent on a good have on its elasticity?
What effect does having a larger proportion of income spent on a good have on its elasticity?
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Which factor is NOT mentioned as influencing the elasticity of demand?
Which factor is NOT mentioned as influencing the elasticity of demand?
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At which part of a linear demand curve is demand considered elastic?
At which part of a linear demand curve is demand considered elastic?
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How does the availability of close substitutes influence a good's elasticity of demand?
How does the availability of close substitutes influence a good's elasticity of demand?
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When demand is perfectly elastic, how does quantity demanded respond to a price change?
When demand is perfectly elastic, how does quantity demanded respond to a price change?
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If a good has a price elasticity of demand greater than 1, what can be inferred about consumer behavior?
If a good has a price elasticity of demand greater than 1, what can be inferred about consumer behavior?
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At which price point does demand become unit elastic?
At which price point does demand become unit elastic?
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If the income elasticity of demand is less than zero, what type of good is it?
If the income elasticity of demand is less than zero, what type of good is it?
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When the quantity demanded increases as the price falls below $12.50, what is the nature of demand?
When the quantity demanded increases as the price falls below $12.50, what is the nature of demand?
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If a 1 percent price cut leads to less than a 1 percent increase in quantity demanded, what can be said about the demand?
If a 1 percent price cut leads to less than a 1 percent increase in quantity demanded, what can be said about the demand?
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What implies that total revenue stops increasing?
What implies that total revenue stops increasing?
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What is the outcome when quantity demanded increases from 25 toward 50 pizzas?
What is the outcome when quantity demanded increases from 25 toward 50 pizzas?
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If the demand is income inelastic, which of the following can be said about the elasticity value?
If the demand is income inelastic, which of the following can be said about the elasticity value?
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When total revenue is maximized, what is true about the elasticity of demand?
When total revenue is maximized, what is true about the elasticity of demand?
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What effect does a price increase have on a good with elastic demand?
What effect does a price increase have on a good with elastic demand?
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What is the price elasticity of demand when the price falls from $10 to $0 and the quantity demanded increases from 30 to 50 pizzas?
What is the price elasticity of demand when the price falls from $10 to $0 and the quantity demanded increases from 30 to 50 pizzas?
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When demand is said to be unit elastic, what occurs when the price is reduced by 1 percent?
When demand is said to be unit elastic, what occurs when the price is reduced by 1 percent?
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If a price cut results in a decrease in total revenue, what can be concluded about the demand for that product?
If a price cut results in a decrease in total revenue, what can be concluded about the demand for that product?
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At which point along a downward-sloping linear demand curve is demand considered to be elastic?
At which point along a downward-sloping linear demand curve is demand considered to be elastic?
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Which of the following scenarios illustrates the total revenue test for price elasticity of demand?
Which of the following scenarios illustrates the total revenue test for price elasticity of demand?
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What indicates the relationship between the demand for a substitute good and its price according to cross elasticity of demand?
What indicates the relationship between the demand for a substitute good and its price according to cross elasticity of demand?
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If the cross elasticity of demand for a pair of goods is negative, what type of relationship do these goods have?
If the cross elasticity of demand for a pair of goods is negative, what type of relationship do these goods have?
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How is the elasticity of supply defined?
How is the elasticity of supply defined?
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What does unit elastic supply signify regarding a good's supply response?
What does unit elastic supply signify regarding a good's supply response?
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When demand increases, what is the likely outcome for the equilibrium price and quantity in a perfectly inelastic supply scenario?
When demand increases, what is the likely outcome for the equilibrium price and quantity in a perfectly inelastic supply scenario?
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What happens to total revenue when demand is inelastic and the price of a good rises?
What happens to total revenue when demand is inelastic and the price of a good rises?
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What characterizes a perfectly elastic supply situation?
What characterizes a perfectly elastic supply situation?
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If the quantity demanded for a good increases when the price of a complement rises, what does this signify?
If the quantity demanded for a good increases when the price of a complement rises, what does this signify?
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What is the formula for calculating cross elasticity of demand?
What is the formula for calculating cross elasticity of demand?
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In examining demand curve analysis, how are perfectly elastic and perfectly inelastic demands represented visually?
In examining demand curve analysis, how are perfectly elastic and perfectly inelastic demands represented visually?
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Study Notes
Elasticity
- Elasticity is a unit-free measure of responsiveness.
- Price elasticity of demand measures responsiveness of quantity demanded to price changes, holding other factors constant.
- Formula: (Percentage change in quantity demanded) / (Percentage change in price)
- To calculate percentage change, use the average of initial and new values for both price and quantity.
- Elasticity values are usually absolute values, ignoring the negative sign resulting from the inverse relationship between price and quantity demanded.
- Inelastic demand: Quantity demanded changes less than proportionally to price changes (value < 1).
- Elastic demand: Quantity demanded changes more than proportionally to price changes (value > 1).
- Unit elastic demand: Quantity demanded changes proportionally to price changes (value = 1).
- Perfectly inelastic demand: Quantity demanded does not change with price changes (value = 0).
- Perfectly elastic demand: Quantity demanded changes infinitely with small price changes (value = ∞).
Factors Influencing Demand Elasticity
- Closeness of substitutes: More substitutes = more elastic demand.
- Proportion of income spent on the good: Larger proportion = more elastic demand.
- Time elapsed since a price change: More time = more elastic demand.
Total Revenue and Elasticity
- Total revenue = Price × Quantity.
- If demand is elastic, price cuts increase total revenue.
- If demand is inelastic, price cuts decrease total revenue.
- If demand is unit elastic, price cuts leave total revenue unchanged.
- Total revenue test: Observe total revenue changes following price cuts to estimate elasticity.
Income Elasticity of Demand
- Measures responsiveness of quantity demanded to income changes.
- Formula: (Percentage change in quantity demanded) / (Percentage change in income).
- Income elastic demand (value > 1): Demand increases more proportionally than income increases (normal good).
- Income inelastic demand (0 < value < 1): Demand increases less proportionally than income increases (normal good).
- Negative income elasticity (value < 0): Demand decreases as income increases (inferior good).
Cross Elasticity of Demand
- Measures responsiveness of quantity demanded of one good to price changes in another good.
- Formula: (Percentage change in quantity demanded of good X) / (Percentage change in price of good Y).
- Positive cross elasticity: Substitute goods; price increase of one good leads to demand increase for another.
- Negative cross elasticity: Complementary goods; price increase of one good leads to demand decrease for another.
- Zero cross elasticity: Unrelated goods; price changes of one good have no effect on the other.
Elasticity of Supply
- Measures responsiveness of quantity supplied to price changes.
- Formula: (Percentage change in quantity supplied) / (Percentage change in price).
- Perfectly inelastic supply: Quantity supplied is fixed regardless of price (value = 0).
- Perfectly elastic supply: Quantity supplied changes infinitely with small price changes (value = ∞).
- Factors that affect supply elasticity:
- Resource substitution possibilities
- Time frame for supply decisions (momentary, short-run, long-run)
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Description
Explore the concept of elasticity in economics, focusing on the price elasticity of demand. This quiz covers the calculation methods, definitions of elastic and inelastic demand, and the significance of elasticity values. Test your understanding of how quantity demanded responds to price changes.
