elasticity

• What is the definition of elasticity in economics?

  Elasticity refers to how sensitive demand and supply are to changes in price.
• What is the law of demand?

  The law of demand states that as price decreases, quantity demanded increases.
• What is the difference between a demand curve and a demand schedule?

  A demand curve is a graphical representation, while a demand schedule is a table of quantities demanded at different prices.
• How do individual and market demand schedules relate?

  Market demand is the sum of all individual demand schedules at each price level.
• What does the slope of the demand curve represent?

  The slope of the demand curve represents the substitution and income effects of price changes.
• What are non-price factors affecting demand?

  Non-price factors include consumer preferences, income levels, and the prices of related goods.
• What is the difference between a normal good and an inferior good?

  A normal good's demand increases with income, while an inferior good's demand decreases as income rises.
• What does Price Elasticity of Demand measure?

  Price Elasticity of Demand measures the sensitivity of quantity demanded to changes in price.
• How is Price Elasticity of Demand calculated using the point method?

  It is calculated as $Ed =$$\frac{\% \text{ change in Quantity}}{\% \text{ change in price}}$.
• What does it mean if the % change in quantity is less than the % change in price?

  It means the good is considered inelastic.
• What is the significance of a negative number in Price Elasticity of Demand?

  The negative sign indicates the inverse relationship between price and quantity demanded, but it can be ignored.
• What is the midpoint method for calculating Price Elasticity of Demand?

  The midpoint method uses averages of price and quantity to calculate elasticity.
• What does it mean if Ed > 1?

  It means demand is elastic and buyers are sensitive to price changes.
• What does it mean if Ed < 1?

  It means demand is inelastic and buyers are not sensitive to price changes.
• What does Ed = 1 indicate?

  It indicates demand is unitary elastic, where price and quantity change at a 1:1 ratio.
• What does Ed = 0 signify?

  It signifies perfectly inelastic demand, which does not change regardless of price.
• What does Ed = ∞ represent?

  It represents perfectly elastic demand, where demand disappears entirely if the price changes.
• How is Total Revenue calculated?

  Total Revenue is calculated by multiplying price by quantity demanded.
• How does the elasticity of demand affect Total Revenue?

  The more inelastic the demand, the more total revenue can be gained.
• What is the relationship between price and total revenue for elastic demand?

  • Increase in Price leads to a Fall in Total Revenue (Negative relationship)
• What is the relationship between price and total revenue for inelastic demand?

  • Increase in Price leads to an Increase in Total Revenue (Positive relationship)
• What is the relationship between price and total revenue for unitary elastic demand?

  • Increase in Price does not change Total Revenue at all
• What is price discrimination?

  Price discrimination is charging different prices to different groups based on their elasticities.
• How does a linear demand curve affect total revenue maximization?

  Total revenue is maximized at the unit elastic point, which is the midpoint of the demand curve.
• How does the availability of substitutes affect price elasticity of demand?

  The greater the number of close substitutes, the more elastic the demand for that good.
• How does necessity versus luxury affect price elasticity of demand?

  Necessities tend to have low elasticity, while luxuries tend to have high elasticity.
• How does the proportion of income spent on a good affect its price elasticity of demand?

  Goods that take up a significant portion of income are more elastic.
• How does time affect price elasticity of demand?

  The more time consumers have to seek alternatives, the more elastic the demand becomes.
• What is Price Elasticity of Supply?

  Price Elasticity of Supply measures the responsiveness of quantity supplied to changes in price.
• How is Price Elasticity of Supply calculated?

  It is calculated as $Es =$$\frac{\% \text{ change in Quantity}}{\% \text{ change in price}}$.
• What does it mean if the % change in quantity supplied is less than the % change in price?

  It means the good is considered inelastic.
• How does time affect Price Elasticity of Supply?

  The longer the time, the more elastic the supply becomes.
• What does the nature of the industry refer to in terms of Price Elasticity of Supply?

  It refers to how much control the producer has over manipulating output.
• What is Income Elasticity of Demand?

  Income Elasticity of Demand measures the sensitivity of demand to changes in income.
• How is Income Elasticity of Demand calculated?

  It is calculated as $Ey =$$\frac{\% \text{ change in quantity}}{\% \text{ change in income}}$.
• What does a positive Income Elasticity of Demand indicate?

  A positive Income Elasticity indicates the good is normal, as demand increases with income.
• What does a negative Income Elasticity of Demand indicate?

  A negative Income Elasticity indicates the good is inferior, as demand decreases with income.
• What is Cross Elasticity of Demand?

  Cross Elasticity of Demand measures the sensitivity of demand to changes in related goods.
• How is Cross Elasticity of Demand calculated?

  It is calculated as $E_{ab} =$$\frac{\% \text{ change in quantity of Good A}}{\% \text{ change in price of Good B}}$.
• What does a positive Cross Elasticity of Demand indicate?

  A positive Cross Elasticity indicates the goods are substitutes.