ECON 102 Chapter Notes - Chapter 6: Luxury Goods, Whopper, Insulin

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7 Oct 2017

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Whenever a firm is thinking of changing its prices, it has a strong interest in elasticity. Elasticity: a measure of the responsiveness of quantity supplied or quantity demanded to one of its determinant. 1: the most commonly used elasticity concept is price elasticity of demand and supply. It"s 2, not -2 because quantity demanded is inversely related to price: the calculation for the price elasticity of demand comes out negative. Price elasticity of supply: the percentage change in quantity supplied divided by the percentage change in price: es = (% change in quantity supplied)/(% change in price) Classifying demand and supply as elastic or inelastic. Economists usually describe supply and demand by the terms elastic and inelastic. Elastic: if the percentage change in quantity is greater than the percentage change in price (e>1: quantity supplied changes by a larger percentage than the percentage change in price.

Related Questions

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.

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1. In each case below, what is the value of the price elasticity of demand? Is demand perfectly inelastic, inelastic, unit elastic, elastic or perfectly elastic?

a. Price falls by 10%, quantity demanded rises by 8%

b. Price rises by 3%, quantity demanded falls by 3%

c. Price rises by 1%, quantity demanded falls by 5%

d. Price rises by 5%, quantity demanded collapses to zero

e. Price falls by 2%, quantity demanded does not change