question

price elasticity of demand

answer

measure how responsive buyers are to price changes

specifically, it measure by what percent the quantity demanded will change in response to a 1% price change

the responsiveness is measured by the ratio of the percent change in price as you move along the demand curve

= percent change in quantity demanded / percent change in price

use absolute value to focus on the magnitude (because we are comparing percent change)

specifically, it measure by what percent the quantity demanded will change in response to a 1% price change

the responsiveness is measured by the ratio of the percent change in price as you move along the demand curve

= percent change in quantity demanded / percent change in price

use absolute value to focus on the magnitude (because we are comparing percent change)

question

elastic

answer

when the absolute value of the percent change in quantity is larger than the absolute value of the percent change in price, which means that the absolute value of the price elasticity is greater than 1

when demand is ?, price increases also lead to large changes in the quantity demanded

the ? demand curve is relatively flat

when demand is ?, price increases also lead to large changes in the quantity demanded

the ? demand curve is relatively flat

question

inelastic

answer

when the absolute value of the percent change in quantity in smaller than absolute value of the percent change in price, which means that the absolute value of the price elasticity is less than 1

when quantity is unresponsive, demand is ?

the ? demand curve is relatively steep

when quantity is unresponsive, demand is ?

the ? demand curve is relatively steep

question

unit elastic

answer

when the absolute value of the price elasticity of demand is exactly equal to 1 it is neither elastic nor elastic

question

perfectly elastic

answer

when any change in price leads to an infinitely large change in quantity

horizontal demand curve

horizontal demand curve

question

perfectly inelastic

answer

when quantity does not respond at all to a price change

vertical demand curve

vertical demand curve

question

price elasticity demand reflects the availability of substitutes

answer

elasticity is all about substitutability. price elasticity demand is larger when:

1) when there are more competing products

2) for specific brands rather than broad categories

3) for things that aren't necessities

4) when consumers search more

5) when there's more time to adjust

1) when there are more competing products

2) for specific brands rather than broad categories

3) for things that aren't necessities

4) when consumers search more

5) when there's more time to adjust

question

total revenue

answer

the total amount you receive from buyers, which equals price times quantity

question

less total revenue

answer

higher prices lead to ? if demand is elastic

question

more total revenue

answer

higher prices lead to ? if demand is inelastic

question

raise your prices

answer

if demand for your product is currently inelastic, you should

question

cross price elasticity of demand

answer

measures how responsive the quantity demanded of one good is to price changes of another

specifically, it measures the percent change in the quantity demanded following a 1% change in the price of another good

we measure this as the ratio of the percent change in quantity demanded to the percent change in the price of another good

it is positive for substitutes and negative for complements

it is near zero for independent goods

specifically, it measures the percent change in the quantity demanded following a 1% change in the price of another good

we measure this as the ratio of the percent change in quantity demanded to the percent change in the price of another good

it is positive for substitutes and negative for complements

it is near zero for independent goods

question

income elasticity of demand

answer

measures how responsive your demand for a good is to changes in your income

specifically, it measures by what percent the quantity demanded will change following a 1% change in income

we measure this as the ratio of the percent change in quantity demanded to the percent change in income

is positive for normal goods and negative for inferior goods

specifically, it measures by what percent the quantity demanded will change following a 1% change in income

we measure this as the ratio of the percent change in quantity demanded to the percent change in income

is positive for normal goods and negative for inferior goods

question

price elasticity of supply

answer

measures how responsive sellers are to price changes

specifically, it measures by what percent the quantity supplied will increase following a 1% change. the larger this percent change in quantity supplied, the more responsive sellers are to price changes

to measure this, observe how the quantity supplied responds to a price change

specifically, you can measure this as the percent change in quantity supplied to the percent change in price as you move along your supply curve

is a positive number

specifically, it measures by what percent the quantity supplied will increase following a 1% change. the larger this percent change in quantity supplied, the more responsive sellers are to price changes

to measure this, observe how the quantity supplied responds to a price change

specifically, you can measure this as the percent change in quantity supplied to the percent change in price as you move along your supply curve

is a positive number

question

flexibility

answer

price elasticity of supply is all about

reflects the ? of firms to increase of decrease the quantity supplied. it is larger:

1) for firms that store inventories

2) when inputs are easily available

3) for firms with extra capacity

4) when firms can easily enter and exit the market

5) when there's more time to adjust

reflects the ? of firms to increase of decrease the quantity supplied. it is larger:

1) for firms that store inventories

2) when inputs are easily available

3) for firms with extra capacity

4) when firms can easily enter and exit the market

5) when there's more time to adjust

The price is based on these factors:

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