ECON 110 Lecture Notes - Lecture 4: Price Elasticity Of Demand, Demand Curve, Negative Number

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Comparative static exercises in the supply and demand model gives us the direction of changes in equilibrium prices and quantities. When only one of the curve shifts the move to a new equilibrium movement along either the d curve or the s curve. We start off therefore looking measures of relative responsiveness of price and quantity along either d or s. Price elasticity ( in the text we will use ed) Inelastic when quantity demanded is not very responsive to changes in its price. Elastic (cid:449)he(cid:374) (cid:395)ua(cid:374)tity de(cid:373)a(cid:374)ded is (cid:448)e(cid:396)y (cid:396)espo(cid:374)si(cid:448)e to a cha(cid:374)ge i(cid:374) the p(cid:396)oduct"s p(cid:396)ice. Figure 4-1 same decrease in supply leads to very different changes in price and quantity. Might think this is due solely to perceived slope differences. While elasticity is related to the slope of the demand curve, but it is not exactly the same. Since demand curves have negative slopes, price and quantity demanded move in the opposite directions among the demand curve.

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interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

marginal revenue

point elasticity

price effect

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unitary elastic demand

1. __________________ A measure of consumersâ sensitivity or responsiveness to changes in the price of a good or service.

2. ___________________ When the percentage change in price (in absolute value) is more than the percentage change in quantity demanded (in absolute value).

3. ___________________ When the percentage change in quantity demanded (in absolute value) is more than the percentage change in price (in absolute value).

4. ___________________ When the percentage change in quantity demanded (in absolute value) is just equal to the percentage change in price (in absolute value).

5. ___________________ Total amount paid to a producer for a good or service P * Q.

6. ___________________ The effect on total revenue of a change in price, holding quantity constant.

7. ___________________ The effect on total revenue of a change in quantity, holding price constant.

8. ___________________ An elasticity calculated over an interval of a demand curve or demand schedule.

9. ___________________ Elasticity at a specific price or point on a demand curve.

10. ___________________ A measure of how responsive quantity demanded is to a change in income, all other things constant.

11. ___________________ A measure showing how responsive the quantity demanded of one good is to changes in the price of another good, other factors constant.

12. ___________________ The additional revenue received by producing and selling one more unit of output.

13. ___________________ Units of output that could have been sold at a higher price had the firm not lowered its price to sell additional (marginal) units.

coffeehornet269

When a non-price determinant of supply changes:

A. there is a movement along the supply curve.

B. the market adjusts to a new equilibrium price and quantity.

C. the supply curve shifts to the left or right.

D. an entirely new supply relationship is created.

E. the equilibrium price and quantity stay the same.

rubyjellyfish151

The market demand curve

a. slopes upward.

b. is found by vertically adding the individual demand curves.

c. represents the sum of the quantities demanded by all the buyers at each price of the good.

d. represents the sum of the prices that all the buyers are willing to pay for a given quantity of the good.

When we move along a given demand curve,

all nonprice determinants of demand are held constant.

only price is held constant.

all determinants of quantity demanded are held constant.

d. income and price are held constant.

When the price of a good or service changes,

	a.	there is a movement along a given demand curve.
	b.	the demand curve shifts in the opposite direction.
	c.	the supply curve shifts in the opposite direction.
	d.	the demand curve shifts in the same direction.

ECON 110 Lecture Notes - Lecture 4: Price Elasticity Of Demand, Demand Curve, Negative Number

ECON 110 Full Course Notes

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