Chapter 6 Word Scramble

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Term	Definition
Elasticity	measure to responsiveness to changes in prices or incomes
When demand curve is elastic	an increase in price reduces the quantity demanded a lot (& vice versa)
Demand Curve is Inelastic when	when same increase in price reduces quantity demanded just a little, then the demand curve is inelastic
Elasticity is NOT EQUAL to slope but...	if two linear demand (or supply) curves run through a common point, then at any given quantity, the curve that is FLATTER IS MORE ELASTIC
Price elasticity of demand	the percentage change in quantity demanded divided by the percentage change in price
Midpoint formula	to avoid calculating different elasticities for rising vs falling prices, we calculate the price elasticity of demand using midpoint formula for percentage changes/instead of dividing by the initial quantity or price, we'll use the average quantity/price
If the Price of a sushi roll drops from $8 to $4 and sales rise from 20 to 40 units, what is the (absolute value) of the price elasticity of demand?	2
\|ED\|<1	demand curve is inelastic
\|ED\|>1	demand curve is elastic
\|ED\|=1	demand curve is unit elastic
Total revenue	price times quantity demanded (sold) TR=PxQ -sellers need to know how elastic their good is so they can plan
When demand is inelastic	the price effect dominates the quantity effect -increase in price will cause only a slight reduction in the quantity demanded and in this instance total revenue will rise when the price rises (& vice versa)
When demand is elastic	quantity effect dominates the price effect -increase in price will cause significant reduction in the quantity demanded and in this instance total revenue will fall when the price rises (and vice versa)
when demand is unit-elastic	quantity effect equals the price effect SO an increase in price exactly balances the reduction in the quantity demanded-in this instance total revenue doesn't change
The elasticity of demand for eggs has been estimated to be 0.1. If egg producers raise their prices by 10 percent, what will happen to their total revenue?	It will increase
If a fashionable clothing store raised its prices by 25% what does that tell you about the store's estimate of the elasticity of demand for its products?	They think it's inelastic
What Factors Determine the price elasticity of demand?	1. the availability of close substitutes is very important 2. Whether the good is a necessity or a luxury also affects the elasticity of demand 3. The share of income spent on the good matters 4. length of time elapsed since the price change matters
Cross-price elasticity of demand	measures how sensitive the quantity demanded of good A is to the price of good B
For substitutes, cross-price elasticity of demand is...	positive -an increase in the price of one brand of cookies will increase the demand for other brands
For complements, cross-price elasticity of demand is...	negative -increase in the price of milk causes a decrease in demand for oreos
Income Elasticity of Demand	measures how sensitive the quantity demanded of a good is to changes in income
For normal goods, income elasticity is.........	positive
For inferior goods, income elasticity is..............	negative

Created by: kthomas96