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Ag Econ
Chapter 5: Elasticity
| Term/Question | Definition/Answer |
|---|---|
| Elasticity | measure of variables sensitivity to change in another variable; how much something is willing to change |
| Price Elasticity | ratio between percent change in Qd/Qs and corresponding percent change in price |
| Own-Price Elasticity | supply/demand not affected by price as much ex: gas |
| Cross-Price Elasticity | supply/demand highly affected by price; substitute/compliments ex: coffee/energy drinks |
| Qd | Quantity demanded |
| Qs | Quantity supplied |
| Price Elasticity of Demand | percent change in Qd of good/service divided by percent |
| Price Elasticity of Supply | percent change in Qs divided by percent change in price |
| Elastic Demand/Supply | one which elasticity is greater than 1 = high responsiveness to change in price |
| Inelastic Demand/Supply | elasticities less than 1 = low response to price change |
| Unitary Elasticity | proportional responsiveness of demand/supply |
| Elastic | % change in Q > % change in $ Qd change significantly w/ $ +/- |
| Unit Elasticity/Unitary: | % change in Q = % change $ Qd change @ same degree as $ |
| Inelastic: | % change in Q < % change in $ Qd doesn't change much w/ $ +/- |
| Mid-Point Method for Elasticity: Q | % change Q = Q2-Q1/(Q2+Q1)/2 x 100 |
| Mid-Point Method for Elasticity: P | % change $ = P2-P1/(P2+P1)/2 x 100 |
| Infinite/Perfect Elasticity | Either Qd/Qs changes by infinite amount in response to any change in price at all; Qs/Q extremely responsive to $ changes, 0-infinity when reaching P Supply/Demand curve = HORIZONTAL |
| Zero elasticity/perfect inelasticity | percent change in $ no matter how large, results in 0 change in Q; vertical = no change in Qs/Qd; regardless of price supply/demand curve = VERTICAL |
| Constant Unity Elasticity | either supply/demand occurs when price change of one % results in Q change of one % |
| Demand curve | constant unitary elasticity will be curved line |
| Supply curve | constant unitary elasticity is straight line reaching from origin; increase in Qd is same as increase in %$ |
| Can business pass costs (costs/savings) onto consumers? | Cost Savings gains causes a supply shift out from So-S1; at any given price-firms willing to supply greater quantity |
| Demand = Inelastic | Result of cost-saving tech. improvement will be substantially lower prices higher $ for sure Q |
| Demand = Elastic | result is slightly lower prices lower Q bought |
| Tax Incidence | Manner which tax burden divided betwix buyers/sellers |
| What happens to consumers if the demand is inelastic? | Consumers get the tax burden. |
| What happens to producers if the supply is inelastic? | Producers bear most of the tax burden. |
| Tax | wedge betwix what the consumers pay and what the producers receive |
| The more elastic the demand and supply curves are.... | the lower the tax revenue |
| Demand elastic > supply | tax on consumers lower than producers Pc-Pe Pe-Pp |
| Supply elastic > Demand | tax on consumers larger than producers Pc-Pe Pe-Pp |
| Elasticities | lower in short run than long run |
| Market Demand | difficult to change Qd in short run; easy to change in long run |
| Market Supply | easier to expand production in long run difficult to change in short run |
| Goods/Services | Short Run = $ bounce up/down more than quantities Long Run = Quantities move more than prices |
| Income Elasticity of Demand | % change in Qd divided by % change in income |
| Rise in Income = | Increase in Qd |
| What can the change in price of one good do to the price of another good? | The change in price of one good can shift the quantity demanded for another good. |
| Cross-Price Elasticity of Demand | % change in Q of good A that is demanded as result of % change in price of good B |
| What are examples of complement and substitute goods where change in price of one good would cause change in demand of other? | compliment: PB+J substitute: energy drinks |
| Elasticity | % change in Q divided by % change in $; Linear demand curve has constant slope; Elasticity varies along curve |
| Wage Elasticity of labor supply | % change in labor supplied divided by % change in wages |
| Wage elasticity of labor demand | % change in labor demanded divided by % change in wages |
| Interest rate elasticity of savings | % change in quantity of savings divided by % change in interest rates |
| Interest rate elasticity of borrowing | % change in quantity of borrowing divided by % change in interest rates |
Created by:
horktera
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