Economics 1021A/B Lecture Notes - Lecture 4: Normal Good, Inferior Good, Midpoint Method

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The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded to a price change. ** we take the absolute value of the equation. Terms ^ can be replaced with (responsive or sensitive) Price elasticity of demand can range from zero to infinity. Based on its value, we can characterize demand as: Inelastic: price elasticity of demand between 0 and 1 (% of change in q) is smaller than (% of change in price) Quantity demanded not very sensitive to price change (gas prices/insulin) Elastic : price elasticity of demand between 1 and infinity. % change in quantity is larger than % change in p. Q demanded is sensitive to price change (price of airline tickets) Unit elastic: price elasticity of demand = 1. % change in q = % change in p. Demand is elastic at prices above the mid-point of the demand curve.

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interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

marginal revenue

point elasticity

price effect

quantity effect

total revenue

unitary elastic demand

1. __________________ A measure of consumersâ sensitivity or responsiveness to changes in the price of a good or service.

2. ___________________ When the percentage change in price (in absolute value) is more than the percentage change in quantity demanded (in absolute value).

3. ___________________ When the percentage change in quantity demanded (in absolute value) is more than the percentage change in price (in absolute value).

4. ___________________ When the percentage change in quantity demanded (in absolute value) is just equal to the percentage change in price (in absolute value).

5. ___________________ Total amount paid to a producer for a good or service P * Q.

6. ___________________ The effect on total revenue of a change in price, holding quantity constant.

7. ___________________ The effect on total revenue of a change in quantity, holding price constant.

8. ___________________ An elasticity calculated over an interval of a demand curve or demand schedule.

9. ___________________ Elasticity at a specific price or point on a demand curve.

10. ___________________ A measure of how responsive quantity demanded is to a change in income, all other things constant.

11. ___________________ A measure showing how responsive the quantity demanded of one good is to changes in the price of another good, other factors constant.

12. ___________________ The additional revenue received by producing and selling one more unit of output.

13. ___________________ Units of output that could have been sold at a higher price had the firm not lowered its price to sell additional (marginal) units.

coffeehornet269

1) All else being equal, the more important an item is in buyers' budgets, the more elastic is the demand for the good. (TRUE/FALSE)

2) If the demand curve for a good is a steep, straight line, then the demand for the good is inelastic at every point along that demand curve. (TRUE/FALSE)

3)If the demand for illegal drugs is inelastic, then government efforts to reduce the supply of illegal drugs are likely to cause an increase in total expenditure on them. (TRUE/FALSE)

4) If the demand for mass transit in a city is inelastic, then raising fares will increase mass transit revenue. (TRUE/FALSE)

5)The cross-price elasticity of demand between Levi's blue jeans and Wrangler's blue jeans is most likely positive (TRUE/FALSE)

6) Perfectly inelastic demand occurs when the demand curve is horizontal. (TRUE/FALSE)

7) Among the reasons that farmers' incomes are unstable is _____
A) The supply curve for food can shift dramatically rightward or leftward from year to year.
B) The demand for food is elastic
C) The income elasticity for food is very high
D) All of these
E) None of these

8) If the (absolute value of) the price elasticity of demand for a good is greater than one, then demand for the good is _____
A) Elastic
B) Inelastic
C) Inferior
D) Normal
E) Paranormal

9) As we move leftward along a straight-line demand curve, the (absolute value of the) price elasticity of demand ____
A) Grows smaller
B) Remains constant at zero
C) Remains constant at a value of one
D) Remains constant and equal to the (absolute value of the) slope of the demand curve
E) Grows larger

10) If a good is normal, we know that______
A) income elasticity is positive
B) The good's price elasticity of demand is positive
C) Demand for the good is elastic
D) Demand for the good is inelastic
E) Income elasticity is negative

11) When the price of a good rise by 10%, and nothing else changes, the quantity of the good demanded falls by 5%. The price elasticity of demand for this good is_____
A) -0.5%
B) -5%
C) -5.0%
D) -2.0%
E) 2.0%

12) If the price elasticity of demand for a good is negative, we know that the good _____.
A) Obey's the law of demand
B) Is normal
C) Is inferior
D) Violates the law of demand
E) is inelastically demanded

13) Which of the following would you expect to have the greatest (in absolute value) price elasticity of demand?
A) Clothing
B) Pants
C) Blue jeans
D) Levi's Blue jeans
E) All of these answers would have approximately the same price elasticity of demand.

14) The price elasticity of demand for a good is -2.0 When the price of this good rises, what occurs?
A) Quantity demanded will rise as well
B) The income of those who buy the goodwill increase
C) Total expenditure on this goodwill fall.
D) All of these
E) All of these answers would have approximately the same price elasticity of demand.

turquoiseporpoise766

1) All else being equal, the more imprtant an item is in buyers' budgets, the more elastic is demand for the good. (TRUE/FALSE)

2) If the demand curve for a good is a steep, straight line, then the demand for the good is inelastic at every point along that demand curve. (TRUE/FALSE)

3)If the demand for illegal drugs is inelastic, then government efforts to reduce the supply of illegal drugs are likely to cause an increase in total expenditure on them. (TRUE/FALSE)

4) If the demand for mass transit in a city is inelastic, then raising fares will increase mass transit revenue. (TRUE/FALSE)

5)The cross-price elasticity of demand between Levi's blue jeans and Wrangler's blue jeans is most likely positive (TRUE/FALSE)

6) Perfectly inelastic demand occurs when the demand curve is horizontal. (TRUE/FALSE)

8) If the (absolute value of) the price elasticity of demand for a good is greater than one, then demand for the good is _____
A) Elastic
B) Inelastic
C) Inferior
D) Normal
E) Paranormal

11) When the price of a good rises by 10%, and nothing else changes, the quantity of the good demanded falls by 5%. The price elasticity of demand fort this good is_____
A) -0.5%
B) -5%
C) -5.0%
D) -2.0%
E) 2.0%

14) The price elasticity of demand for a good is -2.0 When the proce of this good rises, what occurs?
A) Quantity demanded will rise as well
B) The income of those who buy the good will increase
C) Total expenditure on this good will fall.
D) All of these
E) All of these answers would have approximately the same price elasticity of demand.

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Economics 1021A/B Lecture Notes - Lecture 4: Normal Good, Inferior Good, Midpoint Method

ECON 1021A/B Full Course Notes

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