Microeconomics Chapter 6

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Anonymous
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7478
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Microeconomics Chapter 6
Updated:
2010-02-20 17:11:54
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economics
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Description:
Elasticity: The responsiveness of Demand and Supply
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  1. Price elasticity of demand
    • The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.
    • %ΔQd / %ΔP
  2. Elastic Demand
    • A demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price.
    • %ΔQd > |1|
  3. Inelastic Demand
    • A demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price.
    • %ΔQd < |1|
  4. Unit-elastic Demand
    • Demand is unit-elastic when the percentage change in quantity demanded is equal to the percentage change in price.
    • %ΔQd = |1|
  5. Midpoint Formula
    Price elasticity of demand is the difference between Q1 and Q2 divided by the average of Q1 and Q2 divided by the difference between P1 and P2 divided by the average of P1 and P2.
  6. Perfectly Inelastic Demand
    The case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero.
  7. Perfectly Elastic Demand
    THe case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity.
  8. How does time relate to product demand?
    As more time passes, the higher the demand for the product becomes.
  9. Narrowly Defined Market
    consumers have more substitutes available
  10. relationship between narrowly defined and elasticity
    The more narrowly defined a market is, the more elastic the demand will be
  11. relaitonship between the necessity demand curve and the luxury demand curve.
    The demand curve for luxury items is more elastic than the demand curve for a necessity.
  12. Total Revenue
    The total amount of funds received by a seller of a good or service, calculated by multiplying price per unit by the number of units sold.
  13. Cross-price Elasticity of Demand
    The percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
  14. Income Elasticity of Demand
    • The responsiveness of quantity demanded to changes in income.
    • %ΔQd / %ΔIncome
  15. Price Elasticity of Supply
    • The responsiveness of the quantity supplied to a change in price.
    • %ΔQs / %ΔP
  16. Elastic effect on total revenue of an increase in price
    Total revenue falls
  17. Inelastic effect on total revenue of an increase in price
    Total revenue rises
  18. Unit-elastic effect on total revenue of an increase in price
    Total revenue unchanged
  19. Substitutes' value of cross-price elasticity
    Positive
  20. Complements' value of cross-price elasticity
    Negative
  21. Unrelated products value of cross-price elasticity
    Zero

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