Week 5

• What is Elasticity?


  a measure of the responsiveness of QS/QD to one of its determinants
• What is a synonym for "elastic"?

  sensitive
• What is Price Elasticity of Demand?


  a measure of how much the QD of a good responses to a change in the P of that good
• "Changes in P -> changes D"

  True
• Will elasticity stay the same, if the direction is changed?

  no, division of P + Q (midpoint formula)
• "Midpoint does not solve all problems."

  False
• good 1 (1.5), good 2 (1.25) - which one has a low elasticity?

  good 2
• why is price sensitivity important?

  high demand = high sensitivity
• Finish the equation: P increase = people react *** = D ***"

  highly, decrease
• "We do not need to be careful with high elasticity goods."

  False
• Necessary good has *** price demand (people will buy, whatever the price is)

  low
• why should we be careful about taxing people? What does it affect?

  people's consumption
• when the tax good/service that has a low price elasticity, do people care about the P?

  no
• "When I change P, I wait and look at the response, whether it is small or big"

  True
• What is Income Elasticity of Demand?

  a measure of how much QD of a good responds to a change in consumer's income
• "I'm making changes in people's demand -> changes people's demand."

  True
• price inelastic demand?

  0 - 1
• price inelastic demand (DC)?

  steep
• price inelastic - QD changes by *** % than the P

  smaller
• price elastic?

  bigger than 1
• price elastic (DC)?

  flat
• price elastic - QD changes by *** % than the P

  bigger
• (P) price inelastic?

  0
• (P) price inelastic (DC)?

  vertical
• (P) price inelastic - QD *** respond to P

  doesn't
• (P) price elastic?

  infinity
• (P) price elastic (DC)?

  horizontal
• (P) price elastic - QD responds to P changes ***

  infinitely
• Unit elasticity?

  1
• unit elasticity (DC)?

  along the curve
• unit elasticity - QD changes by the *** % as the P

  same
• Does the DC's price elasticity of unit elastic demand imply a constant slope?

  no
• what does flatness/steepness indicate?

  price elasticity
• what does the indication of price elasticity do?

  compare curves
• What are the 2 types of Other demand Elasticity?

  Income EoD, Cross-price EoD
• How do we divide income elasticity?

  normal, inferior good
• income inelastic normal good?

  necessities (0-1)
• "positive sign = *** good"

  normal
• if income elasticity < 1 = QD changes by a *** % than income

  smaller
• income elastic normal good?

  luxury goods (bigger than 1)