•The responsiveness, or sensitivity, to a change in price
What is the definition of price elasticity of demand?
•The ratio of the percentage change in the quantity demanded of a product to a percentage change in its price
What is the equation of Price elasticity
Ed= % D in Q demanded / % D in price
Price elasticity equals the...what?
Change in quantity demanded sum of quantities/2
divided by D
Change in price sum of prices/2
What is the midpoint formula:
Q2-Q1/ Q1+Q2 /// P2-P1/ P1+P2
If we do not have percentages we can use what?
What is elastic demand?
a condition in which % of change in quantity demand is greater than % change in price
What is total revenue?
# total of dollars a firm earns from a sale of a good or service, = to its price x by deamnded quantity
What happens to total revenue as price increases?
what happens to total revenue as price decreases?
What is inelastic demand?
•The percentage change in the quantity demanded is less than the percentage change in price
what happens to total revenue during inelastic demand as price increases?
what happens to total revenue during inelastic demand when price decreases
What is a unitary elastic demand curve?
•The percentage change in the quantity demanded is equal to the percentage change in price
is there a change in total revenue as price decrease or increases during unitary elastic demand?
there is no change
What is a perfectly elasticdemand curve?
•An extreme condition in which a small percentage change in price brings about an infinite percentage change in the quantity demanded
In perfectly elastic demand a price change causes what ?
infinite change in quantity demand
What is a perfectly inelasticdemand curve?
•Another extreme condition in which the quantity demanded does not change as the price changes.
In perfectly inelastic demand price change does what
zero change in quantity demanded
If a college raises tuition, what happensto total revenue
If demand is elastic - total revenue decreases
If demand is inelastic - total revenue increases
If demand is unitary elastic – total revenue is constant
If price increases and the revenue gained is less than the revenue lost, the demand curve is price elastic > 1
If total revenue does not change when price increases, the demand curve is unitary elastic =1
If price increases and the revenue gained is greater than the revenue lost, the demand curve is price inelastic < 1
Does price elasticity of demandvary along a demand curve?
•Yes. The price elasticity of demand coefficient of demand applies only to a specific range of prices along the demand curve.
What factors influence demand elasticity?
•Availability of substitutes•Share of budget on the product•Adjustment to a price change over time
What do substitutes have to dowith a price change?
•The more substitutes a product has, the more sensitive consumers are to a price change, and the more elastic the demand curve
What conclusion can we makeconcerning substitutes?
•The price elasticity of demand is directly related to the availability of good substitutes for a product
What does the share of one’sbudget have to do with a price change?
•The larger the purchase is to one’s budget, the more sensitive consumers are to a price change, and the more elastic the demand curve
What does time have to do withsensitivity?
•The longer consumers have to adjust, the more sensitive they are to a price change, and the more elastic the demand curve
What are other elasticitymeasures?
•Income elasticity of demand•Cross-elasticity of demand
What is income elasticity ofdemand?
•The ratio of the percentage change in the quantity demanded of a good to a given percentage change in income
Income Elasticity of Demand formula??
% change in Q demanded / % change in income
What is cross-elasticity ofdemand?
•The ratio of the percentage change in quantity demanded of a good to a given percentage change in price of another good
Cross-elasticity of Demand formula?
% of change in Q demanded of good A/ % change in price of good B
Price Elasticity of Supply
% in change Q supplied / % change in price
Who pays the tax levied onsellers of goods such as gasoline, cigarettes, and alcoholic beverages?
•It all depends; the corporation pays all, some, or very little of the tax
What decides who pays what partof the tax increase?
•The more elastic the demand, the more the corporation pays; the less elastic the demand, the more the consumer pays
A perfectly elastic demand curve has an elasticity coefficient?
A elastic demand curve has an elasticity coefficient?
greater than 1
A inelastic demand curve has an elasticity coefficient?
less than 1
A unitary elastic demand curve has an elasticity coefficient?
A perfectly inelastic demand curve has an elasticity coefficient?
if promoters raise their prices from $10 to $40 per ticket, then their total revenue will
The longer the time period under study,
the more elastic is the price elasticity of demand
The cross elasticity of demand for substitute products must:
be greater than zer0
If the demand curve is unit elastic, this implies that:
the percentage change in the quantity demanded = the percentage change in product price
suppose promoters charge a price of $30 per ticket. How much total revenue will their sales generate 10 tickets
If a good has a price elasticity of demand coefficient less than one, then:
As the economy recovers from a recession, we should expect that demand for:
inferior goods will rise and demand for non-inferior goods will fall
Governments can use price elasticity of demand to estimate how changes in excise tax rates will affect:
if the area OABC equals the area ODEF, the demand curve is
The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as:
The price elasticity of demand measures consumer responsiveness to a price change.
To determine whether two goods are substitutes or complements, an economist would estimate the:
cross-elasticity of demand
The demand for a product is likely to be more elastic:
when more good substitutes for the product are available.
It is Valentine's Day and Jason is desperately looking all over town for a dozen roses to give to Judy. Most likely, Jason's price elasticity of demand is:
less than 1
The Smith family buys much more macaroni when someone in the family is laid off. This means that the Smiths' ____ is negative.
income elasticity for macaroni
If the demand curve for a good is elastic, consumers will spend more on that good when its price increases.
Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is:
elastic and TR will decrease
Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is: