Questions and Answers
What is elasticity demand?
The elasticity of demand is ______________ in the _______________ run because consumers have more time to adjust.
higher, long
What is an elasticity of 1.0 or greater called?
elastic demand
What is an elasticity of exactly 1.0 called?
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What is an elasticity between 0 and 1.0 called?
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How do you calculate values of elasticity using the elasticity formula?
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What happens to the Elasticity of Demand if there are many substitutes for a good?
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What does it mean for a good to be elastic?
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What type of demand would there be for a good that had no substitutes?
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Which way would the demand curve of Good X shift if the price of Good Y (a complementary good) increased?
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What happens to the demand curve of Good X if the price of Good Y (a substitute good) increases?
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Study Notes
Elasticity of Demand
- Elasticity of demand measures how responsive the quantity demanded is to price changes.
- Higher elasticity indicates consumers are more responsive to price changes, while lower elasticity means less responsiveness.
Types of Elasticity
- Long Run Elasticity: The elasticity of demand is higher in the long run as consumers have more time to adjust their purchasing behaviors.
- Elastic Demand: An elasticity of 1.0 or greater signifies elastic demand, where significant changes in demand occur with price changes.
- Unit Elastic Demand: An elasticity of exactly 1.0 indicates unit elastic demand, where the percentage change in quantity demanded equals the percentage change in price.
- Inelastic Demand: An elasticity between 0 and 1.0 represents inelastic demand, where quantity demanded changes little in response to price changes.
Calculation of Elasticity
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Formula for Elasticity:
- Percentage change in quantity demanded: [(QDemand(NEW) - QDemand(OLD)) / QDemand(OLD)]
- Percentage change in price: [(Price(NEW) - Price(OLD)) / Price(OLD)]
- Elasticity: Step 1 (Quantity) divided by Step 2 (Price)
Factors Affecting Elasticity
- The presence of many substitutes makes a good's demand elastic, as consumers can easily switch to alternatives, leading to decreased demand if prices rise.
- A good with no substitutes exhibits inelastic demand, meaning that price changes have minimal effect on quantity demanded.
Demand Curve Shifts
- A price increase of a complementary good (Good Y) shifts the demand curve of Good X to the left, indicating a decrease in demand for Good X.
- Conversely, an increase in the price of a substitute good (Good Y) causes the demand curve for Good X to shift to the right, indicating an increase in demand for Good X.
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Description
Test your understanding of elasticity demand concepts with this quiz. Explore how responsive consumers are to price changes and the factors influencing demand elasticity in both short and long runs.
