Flashcards
WEEK 3
Flashcards do conjunto (35)
- 1Using income of elasticity. How can you separate a normal from inferior good?If the income elasticity is greater than zero, the good is normal; if it is less than zero, the good is inferior.
- 2What is the formula for income elasticity?Income elasticity equals the percentage change in the quantity demanded divided by the percentage change in income.
- 3How do you separate luxury and necessity goods using income elasticity?Goods with income elasticities between zero and one are necessities; those with income elasticities greater than one are luxuries.
- 4What is the price of elasticity when someone is willing to get $10 worth of something, no matter the quantity?0 or perfectly inelastic
- 5What is the price of elasticity when someone is willing to get 10 of something, no matter the cost?1 or perfectly elastic
- 6Is a substitute product likely to have a positive or negative cross-price elasticity? Is a complement product likely to have a positive or negative cross-price elasticity?Positive as a substitute product.
Negative as a compliment product. - 7What is elasticity?The measure of how buyers and sellers respond to changes in market conditions. The measure of the responsiveness of qty demanded or qty supplied to one of its determinants. It is quantitative.
- 8Price elasticity of demandA measure of how the qty demanded of a good responds to a change in the price of that good.
ed=%changeQ/%changeP. - 9When is price of elasticity elastic/inelastic?Elastic if qty demanded responds substantially to changes in the price.
Inelastic if qty demanded responds only slightly to change in price. - 10Determinants of price elasticity:1. Availability of close substitutes: Easy to replace (elastic) like coke. Hard to replace (inelastic) like eggs.
2. Necessities vs luxuries: Necessities are inelastic, like doctor or food. Luxuries are elastic, like a Yacht or eating out.
3. Definition of the market: Is it narrow or broad? Ice-cream or food. Ice-cream is elastic, food is inelastic.
4. Time horizon: The longer the price increase the greater the effect. - 11How do you calculate the price elasticity of demand, using the mid-point method?Percentage change in qty/Percentage change in demand:
(Q2-Q1)/[(Q2+Q1)/2] /
(P2-P1)/[(P2+P1)/2] - 12At what value does a demand curve become elastic?Anything greater than 1.
QTY MOVES MORE THAN PRICE. - 13At what value does a demand curve become inelastic?Anything below 1.
QTY MOVES LESS THAN PRICE - 14At what value does a demand curve when it runs vertically?0 elasticity.
It's perfectly inelastic. No matter the price people will buy. - 15What is unit elasticity?When both price and qty move equally.
- 16What would a flat demand curve represent?A greater price elasticity.
- 17What does a curved, or steep, curve represent?A smaller price of elasticity
- 18What is total revenue?The amount paid by buyers and received by sellers of a good.
Total revenue = P x Q - 19How does elasticity affect total revenue? Inelastic (Less than 1).A drop in demand will increase price and in turn revenue.
PRICE - UP
QTY - DOWN
Think of the shape of the slope. - 20How does elasticity affect total revenue? Elastic (Greater than 1).A drop in demand increases price but decreases revenue.
PRICE - UP
QTY - DOWN - 21What is income elasticity of demand?The quantity demanded when income changes.
% change in qty demanded /
% change in income - 22When considering elasticity of demand, we consider if the good is normal or inferior. Why?A higher income will result in a higher demand of normal goods.
A lower income will result in more demand for inferior goods. - 23What is cross-price elasticity of demand?A measure of how much the qty demanded of one good responds to a change in the price of another good.
% change in qty of good 1/
% change in qty of good 2
This refers to substitute and compliment goods. - 24When is the cross price negative?Compliment goods work together but one components price increases then sales of the other will drop.
- 25When is cross price positive?Substitute goods work in the same way and therefore if one good raises price the other will be in higher demand.
- 26What is the price elasticity of supply?How much the qty supplied responds to a change in price.
- 27When is the price elasticity of supply elastic?If price substantially changes qty supplied.
- 28When is the price elasticity of supply inelastic?If the qty supplied doesn't or responds only slightly to changes in price.
- 29What may affect price elasticity of supply?The suppliers ability to produce. (Land vs Books). Need to consider time in this instance, how long will a new factory take to build?
- 30How do you calculate the price elasticity of supply?Percentage change in qty supplied /
Percentage change in price:
[(P2-P1)/P1]x100 /
[(Q2-Q1)/Q1]x100 - 31Check book for variety of supply curves.See text book.
- 32Steps to apply supply, demand and elasticity.1. Decide if the event shifts the supply or demand curve, or both.
2. Decide in which direction it shifts.
3. Use the S&D diagram to see how the equilibrium shifts.
4. Calculate the revenue (P x Q) for each situation. - 33What is the difference between absolute and percentage.Absolute: From $1 to $2= $1 difference.
Percentage: $1 to $2 = 100% difference. - 34Elasticity of demand... Is it easier to increase the price of goods if the good is elastic or inelastic?If inelastic price can be increased to increase revenue because this item is a necessity.
If elastic it is not easy to increase price because of substitutes. A price cut creates greater revenue. - 35What is perfectly elastic?Horizontal line - infinity.
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- FlashCards sobre WEEK 3, criado por Tammy Fleming em 22-11-2015.
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- Tammy Fleming
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