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Midterm

Chapters These notes cover all of chapter 4 and five in detail. Key terms, and concepts incorporated in an easy to follow format. Recommended for studying a midterm.

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Department
Economics
Course
ECON 101
Professor
Corey Van De Waal
Semester
Fall

Description
Econ Mid Term Review Chapter 4 and 5Chapter 4ElasticityChapter 5Efficiency and EquityChapter 4 ReviewThe price elasticity of demand is a unitsfree measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers plans remain the sameCalculating Elasticity The price elasticity of demand is calculated by using the formulaPercentage change in quantity demanded Percentage change in priceTo calculate the price elasticity of demand We express the change in price as a percentage of the average pricethe average of the initial and new price and we express the change in the quantity demanded as a percentage of the average quantity demandedthe average of the initial and new quantityBy using the average price and average quantity we get the same elasticity value regardless of whether the price rises or fallsThe ratio of two proportionate changes is the same as the ratio of two percentage changes The measure is units free because it is a ratio of two percentage changes and the percentages cancel out Changing the units of measurement of price or quantity leave the elasticity value the sameThe formula yields a negative value because price and quantity move in opposite directions But it is the magnitude or absolute value of the measure that reveals how responsive the quantity change has been to a price change Inelastic and Elastic DemandDemand can be inelastic unit elastic or elastic and can range from zero to infinity If the quantity demanded doesnt change when the price changes the price elasticity of demand is zero and the good as a perfectly inelastic demand
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