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Questions and Answers
What indicates that demand is considered elastic?
What indicates that demand is considered elastic?
How is the midpoint method for calculating price elasticity of demand different from the traditional method?
How is the midpoint method for calculating price elasticity of demand different from the traditional method?
Which characteristic suggests a good has a lower price elasticity of demand?
Which characteristic suggests a good has a lower price elasticity of demand?
What effect does the steepness of a demand curve have on elasticity?
What effect does the steepness of a demand curve have on elasticity?
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If the price of a good changes from €80 to €70 and the quantity demanded changes from 100 to 120, what formula best represents the arc elasticity calculation?
If the price of a good changes from €80 to €70 and the quantity demanded changes from 100 to 120, what formula best represents the arc elasticity calculation?
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Which scenario would likely result in a perfectly inelastic demand?
Which scenario would likely result in a perfectly inelastic demand?
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What does the term 'unit elastic' indicate about the price elasticity of demand?
What does the term 'unit elastic' indicate about the price elasticity of demand?
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Why would a good with many substitutes be expected to have a higher price elasticity of demand?
Why would a good with many substitutes be expected to have a higher price elasticity of demand?
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Study Notes
Elasticity
- Elasticity measures how much buyers and sellers respond to market changes.
- Price Elasticity of Demand (PED): The percentage change in quantity demanded divided by the percentage change in price.
- PED = (% change in quantity) / (% change in price)
- PED is negative, but the negative sign is often omitted.
- Elastic Demand: A change in price significantly affects quantity demanded (high PED).
- Inelastic Demand: A change in price has a less noticeable impact on the quantity demanded (low PED).
- Demand is elastic if the price elasticity is more negative than -1.
- Anything between -1 and 0 is inelastic.
- -1 is unit elastic.
- Perfectly inelastic demand: demand curve is vertical (PED = 0).
- Perfectly elastic demand: demand curve is horizontal.
Calculating PED using the Midpoint Method
- The midpoint method calculates PED by using the average of the quantity and price change.
- Arc Elasticity Formula:
- Arc Elasticity = (Y1-Y0) / (X1-X0)
- Y1 = new quantity demanded
- Y0 = original quantity demanded
- X1 = new price
- X0 = original price
- Accurate formula as it doesn't matter which direction change occurs
Factors Affecting Elasticity
- Substitutes: Goods with many substitutes tend to have higher elasticity.
- Taste: Luxury goods tend to have higher elasticity.
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Description
This quiz covers the concept of elasticity in economics, focusing on the price elasticity of demand (PED). You'll learn how to calculate PED, understand the differences between elastic and inelastic demand, and explore the midpoint method for accurate elasticity measurement. Test your knowledge of these key economic principles!
