Elasticity: Microeconomics

the flatter the curve …

the bigger the elasticity

the steeper the curve …

the smaller the elasticity

price elasticity of demand is ______ when there are close substitutes

higher

price elasticity of demand is ______ when the good is narrowly defined

higher

price elasticity of demand is ______ when the good is a luxury

higher

price elasticity of demand is ______ when the good is a necessity

lower

price elasticity of demand is ______ in the long run

higher

price elasticity of demand is ______ in the short run

lower

the good for which Qd falls the ____ has the highest price elasticity of demand

most

price elasticity of demand: equation

(% change in Qd)/(% change in P)

midpoint method: equation

( (end value) - (start value) ) / (start value) x 100

we ____ the negative sign of price elasticity

drop

price elasticity of demand measures the …

price sensitivity of buyers’ demand

elasticity measures how much …

one variable responds to changes in another variable

elasticity is a ____ measure of the responsiveness

numerical

the law of demand says that you _____ sell as many websites if you raise your price

won’t

if prices go up, this causes people to buy ____

less

elasticity is all about trying to measure how _____ people respond to changes in prices/ and or income

strongly

“perfectly inelastic demand”: means the curve is _______

vertical

“perfectly inelastic demand”: consumers’ price sensitivity is ____

0

“perfectly inelastic demand”: elasticity is ____

0

“inelastic demand”: means the curve is _________

relatively steep

“inelastic demand”: consumers’ price sensitivity is ______

relatively low

“inelastic demand”: elasticity is _______

<1

“unit elastic demand”: means the curve is _____

an intermediate slope

“unit elastic demand”: consumers’ price sensitivity _______

intermediate

“unit elastic demand”: elasticity is _____

1

“elastic demand”: means the curve is _______

relatively flat

“elastic demand”: consumers’s price sensitivity is _________

relatively high

“elastic demand”: elasticity is _____

> 1

“perfectly elastic demand”: means the curve is _______

horizontal

“perfectly elastic demand”: consumers’s price sensitivity is _________

extreme

“perfectly elastic demand”: elasticity is _____

infinity

this graph represents which curve:

perfectly inelastic demand

this graph represents which curve:

inelastic demand

this graph represents which curve:

unit elastic demand

this graph represents which curve:

elastic demand

this graph represents which curve:

perfectly elastic demand

the slope of a linear demand curve is _____

constant

the elasticity of a linear demand curve is ______

not constant

Revenue =

Price x Quantity Demanded

price increase has 2 effects on revenue: effect #1

higher price means more revenue on each unit you sell

price increase has 2 effects on revenue: effect #2

you sell fewer units (lower Q), due to Law of Demand

P = amount ____ by buyers and _____ by sellers of the good

paid, received

P and Q move in ______ directions

opposite

increase in price causes a big ____ in demand

decrease

when D is elastic, a price increase causes revenue to ____

fall

when D is inelastic, a price increase causes revenue to ____

rise

elastic means that its number is ___ than 1

greater

inelastic means that its number is ____ than 1

less

price elasticity of supply measure how much …

quantity supplied responds to a change in price

price elasticity of supply measures the ______ of sellers’ supply

price-sensitivity

price elasticity of supply: equation

% change in Qs / % change in P

“perfectly inelastic”: means the S curve is ____

vertical

“perfectly inelastic”: sellers’ price sensitivity is ___

0

“perfectly inelastic”: elasticity is __

0

“inelastic”: means the S curve is ____

relatively steep

“inelastic”: sellers’ price sensitivity is _____

relatively low

“inelastic”: elasticity is ____

< 1

“unit elastic”: means the S curve is ____

an intermediate slope

“unit elastic”: sellers’ price sensitivity is ___

intermediate

“unit elastic”: elasticity is ___

1

“elastic”: means the S curve is ______

relatively flat

“elastic”: sellers’ price sensitivity is ______

relatively high

“elastic”: elasticity is ___

> 1

“perfectly elastic”: means the S curve is ____

horizontal

“perfectly elastic”: sellers’ price sensitivity is _____

extreme

“perfectly elastic”: elasticity is ___

infinity

if increased production is very expensive, then the supply curve will be ____

inelastic

if production can be increased cheaply, then the supply curve will be ____

elastic

Two determinants of Supply Elasticity:

availability of input and time

price elasticity of supply ____ as producers have more time to respond to price changes

increases

long-run price elasticity of supply is usually ____ than the short-run elasticity

higher

supply often becomes _____ elastic as Q rises, due to capacity limits

less

income elasticity of demand measure the …

response of Qd to a change in consumer income

income elasticity of demand: equation

% change in Qd / % change in income

an increase in income causes an ____ in demand for a normal good

increase

for normal goods, income elasticity is ___ 0

greater than

for inferior goods, income elasticity is _____ 0

less than

cross-price elasticity of demand measure …

the response of demand for one good to change in the price of another good

cross-price elast. of demand: equation

% change in Qd for good 1 / % change in price of good 2

cross-price elast. of demand: for substitutes, cross-price elasticity is _____ 0

greater than

cross-price elast. of demand: for compliments, cross-price elasticity is _____ 0

less than