ECON 101 Chapter Notes - Chapter 5: Demand Curve, Independent Goods, Normal Good

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28 Mar 2019

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Objective one: measure the responsiveness of the quantity demanded to price changes, using the price elasticity of demand. Price of elasticity of demand - a measure of how responsive buyers are to price changes. It measures the percentage change in quantity demanded that follows from a one percent price increase. Price elasticity of demand = percent change in quantity demanded / percent change in price. But, use the absolute value and ignore the negative sign. That means that the absolute value of the price elasticity of demand is simply the price elasticity of demand with the negative sign dropped. We can say a larger elasticity means a larger percentage change in the quantity demanded. Example: when uber cut fares in nyc by 15%, they found that demand for rides increased by 30 percent. Absolute value of the price of elasticity of demand = |30% / When buyers are very responsive to price, economists describe their demand as elastic.

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interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

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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.