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Economics 1021A/B Lecture Notes - Lecture 7: Inferior Good, Normal Good, Economic Equilibrium

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magentalion728
5 Oct 2018
School
Western University
Department
Economics
Course
Economics 1021A/B
Professor
Jeannie Ann Shearer

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Economics 1021A/B Lecture Notes - Lecture 7: Inferior Good, Normal Good, Economic Equilibrium

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Document Summary

It is the magnitude of the price elasticity of demand that tells us how responsive demand is: to compare elasticities, we use the magnitude of the price elasticity of demand and ignore the minus sign. We always report the price elasticity of demand as a positive number. If the quantity demanded remains constant when the price changes, then the price elasticity of demand is zero and the good is said to have perfectly inelastic demand: the demand curve is vertical. If the percentage change in the quantity demanded equals the percentage change in price, then the price elasticity of demand equals 1 and the good is said to have unit elastic demand. If the percentage change in the quantity demanded is less than the percentage change in price, the good is said to have inelastic demand. If demand is elastic, an increase in price results in a larger percentage decrease in the quantity demanded and total revenue decreases.

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Related Questions

27. Which of the following statements is correct? a. The greater the price elasticity of demand, the more likely the product is a necessity. b. The greater the price elasticity of demand, the smaller the responsiveness of quanti demanded to price. The greater the price elasticity of demand, the greater the percentage change in price over the percentage change in quantity demanded. d. The greater the price elasticity of demand, the greater the responsiveness of quantity demanded to price.

Which is the most appropriate definition for price elasticity of demand? 
 
a) the ratio of the percentage change in quantity demanded to the percentage change in price.
b) the responsiveness of revenue to a change in quantity.
c) the ratio of the change in quantity demanded divided by the change in price.
d) the response of revenue to a change in price.

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

quantity effect

total revenue

unitary elastic demand

1. __________________ A measure of consumers’ 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.