how much buyers and sellers respond to changes in market conditions
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The price elasticity of demand measures
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buyers' responsiveness to a change in the price of a good
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Other things equal, the demand for a good tends to be more inelastic, the...
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fewer available substitutes
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For a particular good, a 3% increase in price causes a 10% decrease in quantity demanded. What statement is most applicable to this good?
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there are many close substitutes for this good
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You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf course in order to meet expenses. The mayor advises you to increase the price of a round of golf. The city manager recommends reducing the price of a round of golf. You realize that
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the mayor thinks demand is elastic, and the city manager thinks demand is inelastic
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Assume that a 4% decrease in income results in a 6% increase in the quantity demanded of a good. The income elasticity of demand for the good is
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positive and therefore the good is a normal good
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Last month, sellers of good Y took in $100 in total revenue on sales of fifty units of good Y. This month, sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 25 to 40 units. We can conclude that goods X and Y are
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substitutes, and have a cross-price elasticity of .6
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A key determinant of the price elasticity of supply is the
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length of the time period
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A decrease in supply will cause the largest increase in price when
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demand is elastic and supply is inelastic
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What is elasticity?
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the degree of responsiveness in supply or demand in relation to changes in price
more elastic= small changes in price will cause large changes in quantity consumed
less elastic= large changes in price will impact change in quantity consumed
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What is price elasticity of demand and how is it calculated?
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A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as a percentage change in quantity demanded divided by the percentage change in price
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What is total revenue?
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the amount paid by buyers and received by sellers of a good, computed as the price of a good x the quantity of the good sold
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What is income elasticity of demand?
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A measure of how much the quantity demanded of a good responds to a change in a consumers' income,
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What is cross elasticity of demand?
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A measure of how much the quantity demanded of one good responds to a change in the price of another good
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What is elasticity of supply?
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A measure of how much the quantity supplied of a good responds to a change in the price of that good
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