Price Elasticity of Demand
This measures how much quantity demanded changes in response to a price change
price elasticity of demand
If an increase in price causes quantity demanded to drop to zero, demand is classified as this?
Perfectly Elastic
This type of good is essential and tends to have inelastic demand. (And what is an example)
Necessity
If two goods are substitutes, their cross-price elasticity is ______.
Positive
Total revenue is calculated using these two variables.
price and quantity sold
The price of popcorn decreases by 11.8%, and its quantity demanded increases by 67%. What is the price elasticity?
5.65
The demand for water bottles has an elasticity of 6.7. Is demand elastic or inelastic?
What is elastic?
The more substitutes a good has, the _______ its price elasticity of demand.
Higher
If the price of peanut butter decreases and the demand for jelly increases, peanut butter and jelly are _______.
complements
If demand is inelastic, a decrease in price will have this effect on total revenue.
Decrease
When demand is elastic, a 10% price decrease leads to what kind of percentage increase in quantity demanded?
greater than 10%
The demand curve for a perfectly inelastic good has this shape.
Vertical
If an item takes up a small portion of a consumer’s income, demand for it tends to be ________.
Inelastic
If the cross-price elasticity of demand between two goods is +1.2, what type of relationship do they have?
substitutes
A coffee shop raises prices by 10%, but total revenue falls. What does this say about the price elasticity of demand for coffee?
Elastic
The price of a movie ticket increases by 20%, and ticket sales fall by 15%. What is the price elasticity of demand?
-0.75 or 0.75
Gasoline demand is more elastic in the long run than in the short run because of this factor.
Time
If the price of gym memberships increases, people are likely to cancel because there are many alternative exercise options. This demonstrates which determinant of elasticity?
Availability of substitutes
A store finds that when average consumer income increases by 5%, demand for a particular good falls by 8%. What type of good is this and what kind of curve does it have?
Inferior Good
A video game retailer raises prices from $40 to $60, and total revenue increases. This suggests that demand for video games in this price range is ______.
Inelastic
What is the formula for price elasticity of demand?
Percent Change in Quantity Demanded over Percent Change in Price
(or one of the expanded versions)
If the price of chocolate rises by 22% and demand drops by 7%, what is the price elasticity of demand for smoking?
.32~
A manufacturer of sports cars raises prices by 5% and quantity demanded drops by 10% Which determinant of elasticity does this best illustrate?
Necessity vs. Luxury (or just luxury is fine)
The price of airline tickets falls by 10%, and hotel bookings increase by 15%. What is the cross-price elasticity, and are these goods substitutes or complements?
1.5 and they are complements
A gym increases its membership price from $30 to $40 per month, causing memberships to drop from 500 to 450. Calculate the price elasticity and determine whether total revenue will rise or fall.
0.368~ and total revenue will increase because demand is inelastic