- Price elasticity of demand
- Income elasticity of demand
- Cross-price elasticity of demand
- Elasticity of supply
- Total revenue
- Consumer surplus
- Producer surplus
- Deadweight loss
Price elasticity of demand is a measure of how much the quantity demanded of a good or service changes in response to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Demand is said to be elastic if the quantity demanded changes by a large percentage in response to a small percentage change in price. Demand is said to be inelastic if the quantity demanded changes by a small percentage in response to a large percentage change in price.
There are a number of factors that can affect the price elasticity of demand for a good or service. These include the availability of substitutes, the importance of the good or service to consumers, and the time horizon.
The availability of substitutes is one of the most important factors that affects price elasticity of demand. If there are many substitutes available for a good or service, consumers are more likely to switch to another good or service when the price of the original good or service increases. This means that the demand for the original good or service will be more elastic.
The importance of a good or service to consumers is another factor that affects price elasticity of demand. If a good or service is essential to consumers, they are less likely to switch to another good or service when the price of the original good or service increases. This means that the demand for the original good or service will be less elastic.
The time horizon is also a factor that affects price elasticity of demand. In the short run, consumers may not have time to adjust their consumption habits when the price of a good or service changes. This means that the demand for a good or service in the short run will be less elastic than the demand for the same good or service in the long run.
Income elasticity of demand is a measure of how much the quantity demanded of a good or service changes in response to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
Demand is said to be normal if the quantity demanded increases when income increases. Demand is said to be inferior if the quantity demanded decreases when income increases.
The income elasticity of demand for a good or service depends on a number of factors, including the type of good or service, the level of income, and the distribution of income.
Luxury goods are goods that have a high income elasticity of demand. This means that the quantity demanded of luxury goods increases by a large percentage when income increases.
Necessary goods are goods that have a low income elasticity of demand. This means that the quantity demanded of necessary goods does not change much when income increases.
The level of income also affects the income elasticity of demand. For goods that are considered to be necessities, the income elasticity of demand is relatively low. This is because people will still need to purchase these goods even if their income decreases. For goods that are considered to be luxuries, the income elasticity of demand is relatively high. This is because people will be more likely to purchase these goods when their income increases.
The distribution of income also affects the income elasticity of demand. If the distribution of income is unequal, then the income elasticity of demand for luxury goods will be higher. This is because the wealthy will be more likely to purchase luxury goods when their income increases.
Cross-price elasticity of demand is a measure of how much the quantity demanded of one good changes in response to a change in the price of another good. It is calculated as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good.
Cross-price elasticity of demand can be positive or negative. If the cross-price elasticity of demand is positive, then the two goods are considered to be substitutes. This means that if the price of one good increases, the quantity demanded of the other good will increase.
If the cross-price elasticity of demand is negative, then the two goods are considered to be complements. This means that if the price of one good increases, the quantity demanded of the other good will decrease.
The cross-price elasticity of demand can be used to determine how changes in the price of one good will affect the demand for another good. For example, if the cross-price elasticity of demand for gasoline and cars is positive, then an increase in the price of gasoline will lead to an increase in the demand for cars.
Elasticity of supply is a measure of how much the quantity supplied of a good or service changes in response to a change in its price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.
Supply is said to be elastic if the quantity supplied changes by a large percentage in response to a small percentage change in price. Supply is said to be inelastic if the quantity supplied changes by a small percentage in response to a large percentage change in price.
There are a number of factors that can affect the elasticity of supply for a good or service.
Price elasticity of demand
What is price elasticity of demand?
Price elasticity of demand is a measure of how much the quantity demanded of a good or service responds to a change in its price.What are the different types of price elasticity of demand?
There are three types of price elasticity of demand: elastic, inelastic, and unitary.What is an example of an elastic good?
An example of an elastic good is a luxury good, such as a new car.What is an example of an inelastic good?
An example of an inelastic good is a necessity, such as food.What is the formula for price elasticity of demand?
The formula for price elasticity of demand is:
$E_d = \frac{\% change in quantity demanded}{\% change in price}$
- What is the relationship between price elasticity of demand and total revenue?
The relationship between price elasticity of demand and total revenue is inverse. When demand is elastic, a decrease in price will lead to an increase in total revenue. When demand is inelastic, a decrease in price will lead to a decrease in total revenue.
Income elasticity of demand
What is income elasticity of demand?
Income elasticity of demand is a measure of how much the quantity demanded of a good or service responds to a change in income.What are the different types of income elasticity of demand?
There are three types of income elasticity of demand: normal goods, inferior goods, and luxury goods.What is an example of a normal good?
An example of a normal good is a car.What is an example of an inferior good?
An example of an inferior good is a hamburger.What is an example of a luxury good?
An example of a luxury good is a yacht.What is the formula for income elasticity of demand?
The formula for income elasticity of demand is:
$E_i = \frac{\% change in quantity demanded}{\% change in income}$
- What is the relationship between income elasticity of demand and normal goods, inferior goods, and luxury goods?
Normal goods have positive income elasticity of demand, inferior goods have negative income elasticity of demand, and luxury goods have high income elasticity of demand.
Cross-price elasticity of demand
What is cross-price elasticity of demand?
Cross-price elasticity of demand is a measure of how much the quantity demanded of one good responds to a change in the price of another good.What are the different types of cross-price elasticity of demand?
There are two types of cross-price elasticity of demand: positive and negative.What is an example of a good with positive cross-price elasticity of demand?
An example of a good with positive cross-price elasticity of demand is a good that is a substitute for another good. For example, if the price of coffee increases, the demand for tea will increase.What is an example of a good with negative cross-price elasticity of demand?
An example of a good with negative cross-price elasticity of demand is a good that is a complement for another good. For example, if the price of coffee increases, the demand for sugar will decrease.What is the formula for cross-price elasticity of demand?
The formula for cross-price elasticity of demand is:
$E_{xy} = \frac{\% change in quantity demanded of good x}{\% change in price of good y}$
Elasticity of supply
What is elasticity of supply?
Elasticity of supply is a measure of how much the quantity supplied of a good or service responds to a change in its price.What are the different types of elasticity of supply?
There are three types of elasticity of supply: elastic, inelastic, and unitary.What is an example of an elastic good?
An example of an elastic good is a good that has a lot of substitutes, such as wheat.What is an example of an inelastic good?
An example of an inelastic good is a good that has few substitutes, such as gasoline.What is the formula for elasticity of supply?
The formula for elasticity of supply is:
$E_s = \frac{\% change in quantity supplied}{\% change in price}$
- What is the relationship between elasticity of supply and total revenue?
The relationship between elasticity of supply and total revenue is direct. When supply is elastic, an increase in price will lead to an increase in total revenue. When supply is inelastic, an increase in price will lead to a decrease in total revenue.
Total revenue
- What is total revenue?
Total revenue is the total If the price of a good increases by 10% and the quantity demanded decreases by 20%, then the price elasticity of demand is:
(A) 0.2
(B) 0.5
(C) 1
(D) 2
(E) 3If the income elasticity of demand for a good is 0.5, then a 10% increase in income will lead to a:
(A) 5% increase in the quantity demanded of the good.
(B) 10% increase in the quantity demanded of the good.
(C) 15% increase in the quantity demanded of the good.
(D) 20% increase in the quantity demanded of the good.
(E) 30% increase in the quantity demanded of the good.If the cross-price elasticity of demand between two goods is positive, then the goods are:
(A) Substitutes.
(B) Complements.
(C) Neither substitutes nor complements.If the supply of a good is perfectly elastic, then a change in the price of the good will lead to:
(A) No change in the quantity supplied of the good.
(B) A decrease in the quantity supplied of the good.
(C) An increase in the quantity supplied of the good.If the total revenue from the sale of a good increases when the price of the good decreases, then the demand for the good is:
(A) Elastic.
(B) Inelastic.
(C) Unit elastic.Consumer surplus is the:
(A) Amount of money that consumers are willing to pay for a good minus the amount of money that they actually pay for the good.
(B) Amount of money that producers are willing to accept for a good minus the amount of money that they actually receive for the good.
(C) Total benefit that consumers receive from consuming a good.Producer surplus is the:
(A) Amount of money that consumers are willing to pay for a good minus the amount of money that they actually pay for the good.
(B) Amount of money that producers are willing to accept for a good minus the amount of money that they actually receive for the good.
(C) Total benefit that producers receive from producing a good.Deadweight loss is the:
(A) Loss of economic efficiency that occurs when a market is not in equilibrium.
(B) Loss of economic efficiency that occurs when a good is not produced at the level where marginal benefit equals marginal cost.
(C) Loss of economic efficiency that occurs when a good is not produced at the level where price equals marginal cost.