# ch. 5

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1. Elasticity
• measures how much one variable responds to another
• numerical measure of responsiveness of Qd or Qs to one of its determinants
2. price elasticity equation
% change in quantity/ % change in Price
3. midpoint method equation
(end value- start value)/midpoint * 100
4. 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
5. perfectly inelastic
• Price E. is = 0
• vertical line
• no price sensitivity
6. inelastic
• relatively steep
• low sensitivity
• less than 1 PE<1
7. unit elastic
• PE = 1
• intermediate slope
8. elastic
PE>1
9. perfectly elastic
• horizontal line
• PE = infinity
10. total revenue
price * quantity
11. if demand is elastic then revenue and price
• move in opposite directions
• negative correlations
12. if demand is inelastic then price and total revenue
• move in the same direction
• positive correlation
13. elasticity rule of thumb
the flatter the slope the higher the elasticity

the steeper the slope the lower the elasticity
14. determinants of supply elasticity
• depends on the flexibility of sellers to change amount of good they produce
• (ex: its harder to produce more beachfront)
15. for many goods price elasticity of supply is ____ in the long run than in the short run
higher/ more elastic
16. income elasticity of demand measures
how the quantity demanded changes as consumer income changes

% change in quantity demanded/ % change income
17. income elasticity is ___ correlated to normal goods
positively
18. income elasticity is ___ correlated to inferior goods
negatively
19. 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
20. cross price elasticity of demand is ____ correlated to substitutes
positively
21. cross price elasticity of demand is ___ correlated to complements
negatively

### Card Set Information

 Author: jillmray ID: 67959 Filename: ch. 5 Updated: 2011-02-21 23:43:51 Tags: ECONOMICS Folders: Description: ELASTICITY AND ITS APPLICATION Show Answers:

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