Elasticity

Question 1

Elasticity

Answer 1

• Specific statistic
• Way of measuring how a dependent variable responds to changes in another
• ANY pair of variables, used A LOT

Question 2

The elasticity is the ratio of ____________

Answer 2

-The percentage changes in the two variables, with the independent variable in the denominator

Question 3

An elasticity that is less than zero (negative) indicates ________________

Answer 3

-That the two variables move in opposite directions – when one increases, the other decreases

Question 4

An elasticity that is greater than one in absolute value indicates _______________

Answer 4

-That a change in the independent variable causes a more than proportionate change in the dependent variable

Question 5

Own-Price Elasticity of Demand

Answer 5

• Moves along a linear demand curve, and revenue changes, too
• Elasticity equals one at the midpoint of the demand curve. The midpoint is also the price-quantity combination at which revenue hits its maximum, and marginal revenue equals zero.

Question 6

The Cross-Price Elasticity for Substitutes is ________

Answer 6

-Positive, because an increase in the price of one commodity leads to a increase in the quantity demanded of the other.

Question 7

Reciprocal

Answer 7

-Flip the numerator and the denominator

Question 8

The Cross-Price Elasticity for Complements is __________

Answer 8

-Negative, because an increase in the price of one commodity leads to a decrease in the quantity demanded of the other commodity