ECON 1B03 Chapter Notes - Chapter 4: Inferior Good, Normal Good, Demand Curve

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ECON 1B03 Full Course Notes

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Elasticity - measures how responsive qd and qs is to change and other determinants. Price elasticity of demand - measure how much the quantity demanded of a good change when the price is changed. Coefficient of elasticity - %elasticity of demand / %change in price, tells us how responsive the good is when a factor is changed. Inelastic demand - change in p leads to a smaller change in qd, coeff is less than 1, Perfectly inelastic demand - a change in p does not change qd at all, coeff = 0, Elastic demand - very responsive to a price change, coeff > 1, flat graph. Perfectly elastic demand - change in p leads to an infinitely great change in qd, Unit elastic - a change in p leads to an equal change in qd, curved graph, coeff = 1. Ep (coeff of elasticity) when given two values - qd = (qd2 - qd1) / qd1.

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A Steel Supply and Demand for the USA are given by Demand: P = 1200 - 100 (QD) and supply: P = 100 (QS) where QD = quantity demanded and QS = quantity supplied

Compute the price elasticity of demand when the price is $800.

What can you say about the demand?

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Is the demand elastic or inelastic?

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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.

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If the percentage change in the quantity demanded of a good is less than the percentage change in price, the price elasticity of demand is:

A) Elastic

B) Inelastic

C) Perfectly inelastic

D) Unitary elastic

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ECON 1B03 Chapter Notes - Chapter 4: Inferior Good, Normal Good, Demand Curve

ECON 1B03 Full Course Notes

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