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• ### What are elasticities?

Measures of the sensitivity of one variable to another.

### What is ht price elasticity of demand?

It measures the sensitivity of quantity demanded to the price of the good itself. The percentage change in quantity demanded divided by the percentage change in price.

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greater

price

### We measure elasticity for a _________ an unchanging demand curve.

Movement along

Yes.

Midpoint

### We will use the midpoint formula when calculating ____________.

Elasticity values from data on prices and quantities

### What is inelastic demand?

Elasticity of demand between 0 and 1.

### What us elastic demand?

A price elasticity of demand greater than 1.

### What is unit elastic demand?

A price elasticity of demand equal to 1.

### What is perfectly inelastic demand?

A price elasticity of demand equal to 0.

### What is perfectly (infinitely) elastic demand?

A price elasticity of demand approaching infinity.

### What does elastic mean?

That quantity demanded is relatively sensitive to price changes.

### What does inelastic mean?

The quantity demanded is relatively insensitive to price changes.

Percentage

Downward

Linear

Nonlinear

### On the one hand, each unit sold can be sold for more, tending to increase revenue. On the other hand, fewer units will be sold, which works to decrease revenue. Which one will dominate?

THe answer depends on the price elasticity of demand for the good. Note that the total revenue of sellers in a market (TR) is the price per unit ℗ times the quantity that people buy. TR= P x Q. When we raise price, p goes up, but q goes down. What happens to the product depends on which one changes by a larger percentage.

Inelastic

### An increase in price raises total revenue when demand is ________, and shrinks total revenue when demand is ________.

Inelastic, elastic

### At any point on a demand curve, sellers' total revenue is the area of a rectangle with height equal to price and width equal to quantity demanded.

Wow, good point.

Yep.

Less elastic

More elastic

YEP.

### What is the short run elasticity of demand?

An elasticity measured just a short time after a price change.

### What is the long-run elasticity?

An elasticity measured a year or more after price change.

Long, short

Good point.

### How can we et two different elasticity measures from the same market?

There can be more than one demand curve associated with the market.

### What is the short run demand curve?

Shows the quantity demanded at different prices when people only have a short period of time ( a few weeks or a few months) to adjust.

### What is a long run demand curve?

Shows quantity demanded after buyers have had much longer to adjust to a price change-- a year or more.

### What is the price elasticity of supply?

The percentage change in quantity supplied caused by a 1% change in price. Percent change in price of quantity suppled divided by percent change in price.

YEP

Along

Elastic

Yep.

### Time horizon is important.

The longer we wait after a price change, the greater the supply response to a price change.

### Quantity is more sensitive to price in the long run, because.....

because farmers have the time to make further adjustments to increase production, such as shifting from other crops to corn.

greater

### What do elasticities have in common?

They tell us the percentage change in one variable caused by a 1% change in the other.

### The ______ tells us how sensitive quantity demanded is to changes in buyers incomes.

Income elasticity of demand

### How is income elasticity of demand calculated?

Percent change in qunaity demanded over the percent change in income

move along

### _____ is positive for normal goods, but negative for inferior goods.

Income elasticity

### What is the cross-price elasticity of demand?

The percentage change in the quantity demanded of one good caused by a 1% percent change in the price of another good.

### With a ______ (as with an income elasticity) the sign matters. A positive cross price elasticity means that the two goods are substitutes: A rise in the price of one good increases demand for the other good.

Cross price elasticity

Compliment

### In general, price elasticity of demand varies along a demand varies along a demand curve.

In a special case of a straight-line demand curve, demand becomes more and more elastic as we move upward and leftward along the curve.

### Generally speaking demand for a good tends to be more elastic...

1. the less we regard the good as a necessity, 2. the easier it is to find substutitues for the good 3. the greater the share of householders' budget that is spent on the good, and 4. the more time we allow for quantity demanded to respond to the price change.

Example: