MBA - Chapter 3 - Custom Scholars
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# MBA – Chapter 3

question
Elasticity
The percentage change in one variable divided by the associated percentage change in the other variable
question
Price Elasticity of Demand
The percentage change in quantity demanded divided by the percentage change in price
question
Arc Price Elasticity of Demand
A price elasticity of demand calculated using two distinct price-quantity pairs
question
Arc Price Elasticity
An elasticity that uses the average price and average quantity as the denominator for percentage calculations
question
Point Elasticity
Elasticity evaluated a specific price-quantity combination
question
Linear Demand Curve Function
Q = quantity
a = quantity that is demanded if the price is 0
b = how much the quantity demanded falls if the price is increased by one unit
question
Elasticity of demand for a linear demand curve
1. Downward-Sloping
2. Horizontal
3. Vertical
question
What are the three types of linear demand curves?
Varies with price
question

ε of a downward-sloping demand curve

- at every point

question

ε of a horizontal demand curve

0 at every point
question

ε of a vertical demand curve

Perfectly inelastic (ε = 0)

question
The (downward-sloping) demand curve is __________________ __________________ where the demand curve hits the horizontal axis

Perfectly elastic (ε approaches -)

question
The (downward sloping) demand curve is __________________ ______________ where the demand curve hits the vertical axis

Unitary elasticity (ε = -1)

question
The (downward-sloping) demand curve has ______________ ____________________ at the midpoint of the demand curve
Horizontal
question
Goods which consumers view as identical often have ____________________ demand curves
Vertical
question
Essential goods have ________________ demand curves
Y = income
question
Income Elasticity of Demand
A good whose quantity demanded increases as income increases
question
Normal Good
A good whose quantity demanded falls as income rises
question
Inferior Good
The percentage change in the quantity demanded divided by the percentage change in the price of another good
question
Cross-Price Elasticity of Demand
Complements
question
If the cross-price elasticity is negative, the goods are ______________________.
Substitutes
question
If the cross-price elasticity is positive, the goods are ______________________.
1. Long run
2. Short run
question
Consumers often substitute between products in the ________ ______, but not in the __________ ______.
The percentage change in quantity supplied divided by the percentage change in price
question
Price Elasticity of Supply
A statistical technique used to estimate the mathematical relationship between a dependent variable and a one or more explanatory variables
question
Regression Analysis
The variable whose variation is to be explained
question
Dependent Variable
The factor(s) that are thought to affect the value of the dependent variable
question
Explanatory Variable(s)
Q = a + bp
a = quantity that is demanded if the price is 0
b = how much the quantity demanded falls if the price is increased by one unit
question
Demand Function
p = g + hQ
g = -a/b > 0
h = 1/b < 0
question
Inverse Demand Function
1. Dependent
2. Explanatory
question
In regression analysis, we put the __________________ variable on the left side of the equation and the ______________________ variable on the right side.
The effects of unobserved influences on the dependent variable that are not included as explanatory variables
question
Random Error Term
The gap between the actual value of the dependent variable and the predicted value
question
Residual
A regression wit two or more explanatory variables
question
Multivariate Regression
...
question
...
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question
Elasticity
The percentage change in one variable divided by the associated percentage change in the other variable
question
Price Elasticity of Demand
The percentage change in quantity demanded divided by the percentage change in price
question
Arc Price Elasticity of Demand
A price elasticity of demand calculated using two distinct price-quantity pairs
question
Arc Price Elasticity
An elasticity that uses the average price and average quantity as the denominator for percentage calculations
question
Point Elasticity
Elasticity evaluated a specific price-quantity combination
question
Linear Demand Curve Function
Q = quantity
a = quantity that is demanded if the price is 0
b = how much the quantity demanded falls if the price is increased by one unit
question
Elasticity of demand for a linear demand curve
1. Downward-Sloping
2. Horizontal
3. Vertical
question
What are the three types of linear demand curves?
Varies with price
question

ε of a downward-sloping demand curve

- at every point

question

ε of a horizontal demand curve

0 at every point
question

ε of a vertical demand curve

Perfectly inelastic (ε = 0)

question
The (downward-sloping) demand curve is __________________ __________________ where the demand curve hits the horizontal axis

Perfectly elastic (ε approaches -)

question
The (downward sloping) demand curve is __________________ ______________ where the demand curve hits the vertical axis

Unitary elasticity (ε = -1)

question
The (downward-sloping) demand curve has ______________ ____________________ at the midpoint of the demand curve
Horizontal
question
Goods which consumers view as identical often have ____________________ demand curves
Vertical
question
Essential goods have ________________ demand curves
Y = income
question
Income Elasticity of Demand
A good whose quantity demanded increases as income increases
question
Normal Good
A good whose quantity demanded falls as income rises
question
Inferior Good
The percentage change in the quantity demanded divided by the percentage change in the price of another good
question
Cross-Price Elasticity of Demand
Complements
question
If the cross-price elasticity is negative, the goods are ______________________.
Substitutes
question
If the cross-price elasticity is positive, the goods are ______________________.
1. Long run
2. Short run
question
Consumers often substitute between products in the ________ ______, but not in the __________ ______.
The percentage change in quantity supplied divided by the percentage change in price
question
Price Elasticity of Supply
A statistical technique used to estimate the mathematical relationship between a dependent variable and a one or more explanatory variables
question
Regression Analysis
The variable whose variation is to be explained
question
Dependent Variable
The factor(s) that are thought to affect the value of the dependent variable
question
Explanatory Variable(s)
Q = a + bp
a = quantity that is demanded if the price is 0
b = how much the quantity demanded falls if the price is increased by one unit
question
Demand Function
p = g + hQ
g = -a/b > 0
h = 1/b < 0
question
Inverse Demand Function
1. Dependent
2. Explanatory
question
In regression analysis, we put the __________________ variable on the left side of the equation and the ______________________ variable on the right side.
The effects of unobserved influences on the dependent variable that are not included as explanatory variables
question
Random Error Term
The gap between the actual value of the dependent variable and the predicted value
question
Residual
A regression wit two or more explanatory variables
question
Multivariate Regression
...
question
...
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