midterm unit 4

Question 1

Price elasticity of demand

Answer 1

The responsiveness or sensitivity of consumers to a P change is measured by a products P Elasticity of D

Question 2

cross price elasticity

Answer 2

effect of a change in a product’s P on the QD for another product
EXY=Change in QD of product x/ change in QD of product y

If Exy positive: X and Y are substitutes.
If Exy is negative: X and Y are complements.
If Exy is zero, = X and Y are unrelated, independent products

Question 3

income elasticity

Answer 3

Measures the % change in QD which results from some % change in consumer incomes.
Ei = (% change in QD) / (% change in income)

If income elasticity is positive: normal good
If income elasticity is negative: an inferior good

Question 4

price elasticity of supply

Answer 4

measures how responsive producers are to price change
Es = % Change in QS/ % Change in P
Precents are from midpoint formula

Question 5

midpoint formula

Answer 5

% change in quantity
Q2-Q1
———-
(Q2+Q1)/2

% change in price
P2-P1
———–
(P2+P1)/2

Question 6

price elasticity of demand formula

Answer 6

% change in QD/ % change in P

Question 7

price Elasticity of supply formula

Answer 7

% change in QS/ % change in P

Question 8

3 time periods for the elasticity of supply

Answer 8

market period, short run, long run

Question 9

market period

Answer 9

so short that elasticity of supply is inelastic

Question 10

short run

Answer 10

Supply elasticity is more elastic than the market period and will depend on the ability of producers to respond to price changes as to how elastic it is. mostly everything is fixed

Question 11

long run

Answer 11

Supply elasticity is the most elastic, because more adjustments can be made over time and Q can be changed, nothing is fixed