Econ

• Elasticity


  The responsiveness of one variable to a change in another variable
• Price Elasticity


  Sensitivity of demand when price changes
• Income Elasticity of Demand


  Sensitivity of demand when income changes
• Cross Price Elasticity of Demand


  Sensitivity of demand when price of competing companies change
• Formula of Price Elasticity of Demand:


  % change in Qd / % change in Price
• The price of elasticity of demand is always...


  Negative, due to the law of demand (but is typically ignored when getting a sum)
• Inelastic Demand


  Price elasticity of demand is less than one (PEoD < 1)
• Elastic Demand


  Price elasticity of demand is greater than one (PEoD > 1)
• Unit Elastic Demand


  Price elasticity of demand is equal to one (PEoD = 1)
• For Inelastic Demand, the percentage change in price is _____ than percentage change in quantity demanded


  greaterSee an expert-written answer!We have an expert-written solution to this problem!
• For Elastic Demand, the percentage change in price is _____ than percentage change in quantity demanded


  smallerSee an expert-written answer!We have an expert-written solution to this problem!
• Inelastic Demand is...


  less than one
• Elastic Demand is...


  greater than one
• Unit Elastic Demand is...

  equal to one
• In the formula for Price Elasticity of Demand, between Qd and P, which one goes on the top of the equation?


  Quantity Demanded
• Is " .4 " Inelastic Demand or Elastic Demand?

  Inelastic Demand
• Is " 2 " Inelastic Demand or Elastic Demand?

  Elastic Demand
• What are the Determinants of Price Elasticity of Demand? (Acronym: ANIT)


  Availability of close substitutes, necessity vs. luxury good, percentage of income spent on good, & time horizon (length of time)
• Perfectly Elastic Demand


  Price elasticity of demand or elasticity is equal to infinity (PEoD = ∞)
• Perfectly Elastic Demand on the graph would look like...

  
• Perfectly Inelastic


  Price elasticity of demand or elasticity is equal to zero (PEoD = 0)
• Perfectly Inelastic Demand on the graph would look like...

  
• Ceteris Paribus


  all other things held constant
• For Ceteris Paribus, demand is less elastic...

  
  

  A) the more luxury the good

  B) the larger the percentage of total budget that a family spends on a good

  C) the shorter the time period for adjustment

  D) the more substitutes a good has

  the shorter the time period for adjustment
• Spring break vacations are _____ than tuition payments because spring break vacations _____?

  
  

  A) more price elastic; are more of a luxury good

  B) less price elastic; have more available substitutes

  C) more price elastic; have less available substitutes

  D) less price elastic; are more of a luxury good


  More price elastic; are more of a luxury good
• Assume you are in charge of Stockdale Country Club. You need to increase the revenue to meet expenses. The mayor advises you to increase the membership fee. The manager recommends decreasing the membership fee. Who is right?

  
  

  A) the mayor

  B) the manager

  C) it depends on the price of elasticity of demand for Stockdale Country Club

  D) increase the membership fee for Stockdale Country Club

  It depends on the price elasticity of demand for Stockade Country Club
• Formula of Total Revenue:

  TR = Price * Quantity
• What determines whether total revenue increases or decreases and when prices go up or down?

  The Elasticity of Demand
• Revenue decreases when price goes up for an...

  Elastic Good
• Revenue increases when price goes up for an...

  Inelastic Good
• Suppose you are in charge of pricing at Apple store and you wish to increase revenues from your MacBook line. Apple's chief economist informs you that the price elasticity of demand for MacBook is estimated to be -1.17. Based on this information, you would:

  
  

  A) increase price

  B) decrease price

  C) not change price

  D) not enough information to make a rational decision

  decrease price
• Normal Goods


  Goods that consumers demand more of when their incomes rise
• Inferior Goods


  Goods that consumers demand less of when their incomes rise
• Substitute Goods


  Goods that can be used to replace the purchase of similar goods when prices rise
• Complementary Goods


  Goods that are commonly used with other goods
• Consumer Preferences


  People prefer one good to another
• Budget Constraint


  What we can have based on the limited incomes
• Consumer Choices


  We need to combine the consumer preferences and budget constraint to determine consumer choices and maximize consumer satisfaction
• Utility


  Total happiness or total satisfaction
• The main objective of a consumer is to:

  Maximize the utility