economics ch 5

Total Word Count: 456
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the price elasticity of demand measures how much

quantity demaned responds to a change in price

demand is said to be price elastic if

buyers respond substantially to changes in the price of a good

demand is said to be inelastic if

the quantity demanded changes inly slightly when the price of the good changes

demand is elastic if the price elasticity of demand is

greater than 1

demand is inelastic if the price elasticity of demand is

less than 1

goods with many close substitutes tend to have

more elastic demands

for a good that is a luxury demand tends

to be elastic

for a good that is a necessity demand tends

to be Inelastic

a good will have more inelastic demand the

broader the definition of the market

economists compute the price elasticity of demand as the

percentage change in quanitity demanded divided by the percentage change in price

if the price elasticity of demand for a good is 2.0 then a 10 percent increase in price results in

20 percent decrease in quanityty demanded

when demand is perfectly inelastic the demand curve will be

vertical bc buyers purchase the same amount as before whenever the price falls or rises

demand is said to have unit elasticity if the price elasticity od demand is

equal to 1

when demand is elastic a decrease in price will cause

an increase in total revenue

when demand is inelastic an increase in price will cause an

increase in total revenue

when demand is unit elastic price elasticity of demand equals

1, and total revenue does not change when price changes

incomse elasticity of demand measures how

the quantity demanded changes as consumer income changes

if an increase in income results in a decrease in quantity demanded of a goos then for that good the

income elasticity of demand is negative

assume that a 4% increase in income results in a 2% increase in quantity remaded of a good. income elasticity of demand for the good is

positive, and the good is a normal good

cross price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in price of another good

if 2 goods are substitutes their cross price elasticity will bw

positive

if 2 goods are complements their cross price elasticity will be

negative

if the quantity supplies responds only slightly to changes in price then

supply is said to be inelastic

Key determinant of the price elasticity of supply is the

time horizon

if the quantity supplies is the same regardless of price then supply is

perfectly inelastic

suppose that corn farmers want to increase their total revenue knowing that the demand for corn is inelastic corn farmers should

reduce the number of acres on which they plant corn

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