# ch. 5

 The flashcards below were created by user jillmray on FreezingBlue Flashcards. Elasticity measures how much one variable responds to anothernumerical measure of responsiveness of Qd or Qs to one of its determinants price elasticity equation % change in quantity/ % change in Price midpoint method equation (end value- start value)/midpoint * 100 price elasticity of demand is high when -close substitutes are available-narrowly defined goods (blue jeans rather than just clothing)-if item is a luxury-in the long run perfectly inelastic Price E. is = 0vertical line no price sensitivity inelastic relatively steep low sensitivity less than 1 PE<1 unit elastic PE = 1 intermediate slope elastic PE>1 perfectly elastic horizontal line PE = infinity total revenue price * quantity if demand is elastic then revenue and price move in opposite directions negative correlations if demand is inelastic then price and total revenue move in the same directionpositive correlation elasticity rule of thumb the flatter the slope the higher the elasticity the steeper the slope the lower the elasticity determinants of supply elasticity depends on the flexibility of sellers to change amount of good they produce (ex: its harder to produce more beachfront) for many goods price elasticity of supply is ____ in the long run than in the short run higher/ more elastic income elasticity of demand measures how the quantity demanded changes as consumer income changes % change in quantity demanded/ % change income income elasticity is ___ correlated to normal goods positively income elasticity is ___ correlated to inferior goods negatively cross price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good % change in Qd of good 1/ % change in price of good #2 cross price elasticity of demand is ____ correlated to substitutes positively cross price elasticity of demand is ___ correlated to complements negatively Authorjillmray ID67959 Card Setch. 5 DescriptionELASTICITY AND ITS APPLICATION Updated2011-02-21T23:43:51Z Show Answers