# Microeconomics Chapter 5 example #51530

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Price elasticity of demand - the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve
A calculated price elasticity of demand measures the response of the quantity demanded to a particular change in price. It compares the percent change in quantity demanded to the percent change in price as a point moves along a demand curve
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Midpoint method - a technique for calculating the percent change
This approach calculates changes in a variable compared with the average, or midpoint, of the starting and final values
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Perfectly inelastic - when the quantity demanded does not respond at all to changes in the price
When demand is perfectly inelastic, the demand curve is a vertical line. This occurs when the percent change in the quantity demanded is zero for any change in the price
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Perfectly elastic - when any price increase will cause the quantity demanded to drop to zero
When demand is perfectly elastic, the demand curve is a horizontal line. The horizontal demand curve implies an infinite price elasticity of demand
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Elastic - demand is elastic if the price elasticity of demand is greater than 1
Products tend to be more elastic if there are various readily substitutes available, the product takes up a large amount of income, and if they are necessary right in the moment.
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Inelastic - demand is inelastic if the price elasticity of demand is less than 1
Products tend to be more inelastic if there are not adequate substitutes available, the product does not cost a lot of income, and if they are needed right in the moment.
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Unit-elastic - demand is unit-elastic if the price elasticity of demand is exactly 1
Products are unit-elastic when a certain percentage of a change in price causes the exact same percentage of change in quantity demanded
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total revenue- the total value of sales of a good or service
Total revenue is qual to the price multiplied by the quantity sold. Sellers can calculate total revenue to try and determine a price to sell their product/service for to maximize sales.
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Cross-price elasticity of demand - the cross-price elasticity of demand between two goods measures the effect of the change in one good's price on the quantity demanded of the other good
Cross-price elasticity of demand is equal to the percent change in the quantity demanded of one good divided by the percent change in the other good's price. When two goods are substitutes, the cross-price elasticity of demand is positive: a rise in the price of one substitute increases the demand for the other. If the goods are close substitutes, the cross-price elasticity will be positive and large; if not close substitutes, the cross-price elasticity will be positive and small. When two goods are complements, the cross-price elasticity will be negative. Very negative=strong complements.
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income elasticity of demand - percent change in the quantity of a good demanded when a consumer's income changed divided by the percent change in the consumer's income
Income elasticity of demand allows people to determine whether a good is a normal or inferior good as well as a measure how intensely the demand for the good responds to changes in income. If the income elasticity of demand is positive, the good is a normal good, when negative, the good is inferior
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income-elastic - the demand for a good is income-elastic if the income elasticity of demand for that good is greater than 1