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Questions and Answers
To calculate the price elasticity of demand, one uses the following formula: PED = (% Change in Quantity Demanded) / (% Change in ______)
To calculate the price elasticity of demand, one uses the following formula: PED = (% Change in Quantity Demanded) / (% Change in ______)
Price
The price elasticity of demand for strawberries would be -20%, indicating that the decrease in quantity demanded follows an increase in ______.
The price elasticity of demand for strawberries would be -20%, indicating that the decrease in quantity demanded follows an increase in ______.
Price
Unlike price elasticity of demand, which indicates consumer responses, price elasticity of supply reflects ______ responses.
Unlike price elasticity of demand, which indicates consumer responses, price elasticity of supply reflects ______ responses.
Producer
Categories of elasticity of supply range from suppliers responding immediately to price changes (perfectly elastic) to those showing little or no response (perfectly ______).
Categories of elasticity of supply range from suppliers responding immediately to price changes (perfectly elastic) to those showing little or no response (perfectly ______).
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The elasticity of substitution assesses the degree to which one input can ______ another in microeconomics.
The elasticity of substitution assesses the degree to which one input can ______ another in microeconomics.
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Higher values of elasticity of substitution imply a greater ability to substitute one input for another without affecting the production function ______.
Higher values of elasticity of substitution imply a greater ability to substitute one input for another without affecting the production function ______.
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Elasticity measures the responsiveness of economic variables such as supply and demand to changes in _______
Elasticity measures the responsiveness of economic variables such as supply and demand to changes in _______
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Price Elasticity of _______ measures the responsiveness of the quantity demanded of a good or service to a change in its price
Price Elasticity of _______ measures the responsiveness of the quantity demanded of a good or service to a change in its price
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If the percentage change in quantity demanded is less than the percentage change in price, the demand is considered _______
If the percentage change in quantity demanded is less than the percentage change in price, the demand is considered _______
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If the percentage change in quantity demanded is greater than the percentage change in price, the demand is _______
If the percentage change in quantity demanded is greater than the percentage change in price, the demand is _______
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Unit elasticity of demand represents a special case where the percentage change in quantity demanded equals the percentage change in _______
Unit elasticity of demand represents a special case where the percentage change in quantity demanded equals the percentage change in _______
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The price elasticity of demand is equal to one in the case of _______ elasticity
The price elasticity of demand is equal to one in the case of _______ elasticity
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Study Notes
Microeconomics: Elasticity
Introduction
Microeconomics is the branch of economics that studies the behavior of individuals and businesses in making decisions related to the allocation of scarce resources and the creation of goods and services. One of the fundamental concepts in microeconomics is elasticity, which measures the responsiveness of economic variables such as supply and demand to changes in prices.
Price Elasticity of Demand
The most widely discussed form of elasticity is the price elasticity of demand. It measures the responsiveness of the quantity demanded of a good or service to a change in its price. If the percentage change in quantity demanded is less than the percentage change in price, the demand is considered inelastic, implying that consumers are less sensitive to price changes. On the other hand, if the percentage change in quantity demanded is greater than the percentage change in price, the demand is elastic, indicating that consumers are highly responsive to price changes.
The unit elasticity of demand is another important concept in microeconomics. It represents a special case where the percentage change in quantity demanded equals the percentage change in price. In this scenario, the price elasticity of demand is equal to one, hence it is sometimes called unitary elasticity.
Calculating Price Elasticity of Demand
To calculate the price elasticity of demand, one uses the following formula:
PED = (% Change in Quantity Demanded) / (% Change in Price)
For instance, suppose the price of strawberries increases by 10%, and customers purchase 20% fewer strawberries as a result. Using the formula above, the price elasticity of demand for strawberries would be -20%. Since the negative sign indicates that the decrease in quantity demanded follows an increase in price, the price elasticity of demand is a negative number.
Elasticity of Supply
Another significant type of elasticity in microeconomics is the elasticity of supply. It measures the responsiveness of a supplier to changes in price. Unlike price elasticity of demand, which indicates consumer responses, price elasticity of supply reflects producer responses.
There are several types of elasticity of supply, including perfectly elastic, elastic, unit elastic, inelastic, and perfectly inelastic supply. These categories range from suppliers responding immediately to price changes (perfectly elastic) to those showing little or no response (perfectly inelastic).
Elasticity of Substitution
The elasticity of substitution is a concept in microeconomics that assesses the degree to which one input can replace another. It provides insights into the degree of substitutability among different inputs.
Elasticity of substitution is particularly relevant in the context of production functions, which describe the relationship between the quantities of various inputs and the production of goods or services. Higher values of elasticity imply a greater ability to substitute one input for another without affecting the production function significantly.
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Description
Test your knowledge of elasticity concepts in microeconomics, including price elasticity of demand, unitary elasticity, elasticity of supply, and elasticity of substitution. Learn how to calculate price elasticity of demand and understand the different types of supply elasticity.
