45 What is the Price Elasticity of Demand for bananas? X 19 = =
46 What is the Price Elasticity of Demand for oranges? X 55 = = 6,600 10,200 46
47 What is a linear demand curve? A straight-line demand curve 47
48 Demand, Price Elasticity, and Total Revenue $ Price per unit a b Elastic c Unit elastic d e ,000 Quantity per period Panel A: Demand and price elasticity Inelastic 48
49 How do price and total revenue relate? In the elastic range of a demand curve, price and total revenue move in opposite directions. In the inelastic range, price and total revenue move in the same direction 49
50 Demand, Price Elasticity, and Total Revenue Total Revenue $25, Total revenue Quantity per period 0 1,000 Panel B: Total Revenue 50
51 What is a perfectly elastic demand curve? A horizontal line reflecting a situation in which any price increase reduces quantity demanded to zero 51
52 A Perfectly Elastic Demand Curve Price per unit p E D = D 0 Quantity per period 52
53 What is a perfectly inelastic demand curve? A vertical line reflecting a situation in which price change has no effect on the quantity demanded 53
54 A Perfectly Inelastic Demand Curve Price per unit D' Q E D = 0 0 Quantity per period 54
55 What is unit elasticity of demand? The type of demand that exists when price elasticity is the same everywhere along the curve, it has an elasticity of
56 A Unit Elastic Demand Curve Price per unit $10 $6 E D = 1 D'' Quantity per period 56
57 What is income elasticity of demand? The percentage change in the quantity demanded resulting from a 1 percent change in total income 57
58 What is a normal good? Something that people will buy more of as their incomes increase 58
59 If a good is normal, then the income elasticity of demand for that good is? Positive 59
60 What is an inferior good? Something that people will by less of as their incomes increase 60
61 If a good is inferior, then the income elasticity of demand for that good is? Negative 61
62 What is cross price elasticity of demand? The percent change in the demand of one good (at a given price) as a result of the percent change in the price of another good 62
63 If negative - complements (steak & steak sauce) If positive - substitutes (butter & margarine) 63
64 If an increase in the price of peanut butter causes a decline in the demand for jelly, then? the goods are complements 64
65 If a decrease in the price of one good causes a decline in the demand for another good, then? The goods are substitutes 65
66 What are some examples of complementary goods? computers and software cars and gasoline CDs and playlists 66
67 What is price elasticity of supply? A measure of the responsiveness of quantity supplied to a price change 67
68 Price elasticity equals the percentage in quantity demanded divided by the percent change in price (using the arc formula) E = q' q S S S (q' + q )/2 S S p' p (p'+ p)/2 68
69 What is a perfectly elastic supply curve? A horizontal line reflecting a situation in which any price decrease reduces the quantity supplied to zero; the elasticity value is infinity 69
70 Price per unit p Perfectly Elastic Supply E S = S 0 Quantity per period 70
71 What is a perfectly inelastic supply curve? A vertical line reflecting a situation in which a price change has no effect on the quantity supplied; the elasticity value is zero 71
72 A Perfectly Inelastic Supply Curve Price per unit S' E S = 0 Q 0 Quantity per period 72
73 What is unit-elastic supply? A percent change in price causes an identical percent change in quantity supplied; the elasticity value is one 73
74 How is unit-elastic supply depicted? A supply curve that is a straight line through the origin 74
75 A Unit Elastic Supply Curve Price per unit $10 5 S ' Quantity per period 75
76 What are the determinants of supply elasticity? Costs Time 76
77 Market Supply Becomes More Elastic Over Time Price per unit $12 $10 S w S m S y W=week M=month Y=year Quantity per period 77
78 Effects of Different Demand Elasticities on Sales Tax Incidence Price per pack $2.30 S t S $0.40 tax D Millions of packs per day Panel A: Less elastic demand 78
79 Effects of Different Demand Elasticities on Sales Tax Incidence Price per pack $ S t S $0.40 tax D' Millions of packs per day Panel B: More elastic demand 79
80 Effects of Different Supply Elasticities on Sales Tax Incidence Price per pack $2.30 $2.00 $1.90 S t S $0.40 tax D'' Millions of packs per day Panel A: More elastic supply 80
81 Effects of Different Supply Elasticities on Sales Tax Incidence Price per pack $ S t S $0.40 tax Millions of packs per day Panel B: Less elastic supply D'' 81
Chapter 6 Elasticity: The Responsiveness of Demand and Supply Chapter Outline 61 LEARNING OBJECTIVE 61 The Price Elasticity of Demand and Its Measurement Learning Objective 1 Define the price elasticity
2011 Pearson Education Elasticities of Demand and Supply: Today add elasticity and slope, cross elasticities What Determines Elasticity? Influences on the price elasticity of demand fall into two categories:
Elasticity and Its Application Chapter 5 All rights reserved. Copyright 2001 by Harcourt, Inc. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,
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Page 1 of 17 1. Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will Decrease
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Experiment 3 Suppose that sellers pay a tax of 15. If a seller with cost 5 sells to a buyer with value 45 at a price of 25, the seller earns a profit of and the buyer earns a profit of. Suppose you are
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CHAPTER 4 Supply and Demand Teach a parrot the terms supply and demand and you ve got an economist. Thomas Carlyle McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
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