Exam 2 Review Sheet

# Exam 2 Review Sheet - Exam 2 Review Sheet Economics 212...

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Exam 2 Review Sheet Economics 212 CHAPTER 6 Midpoint formula – a method for calculating price elasticity of demand or price elasticity of supply that averages the two prices and two quantities as the references points for computing percentages Ed or Es = [change in quantity / (sum of quantities / 2)] / [change in price / (sum of prices / 2)] Define demand and supply and state the laws of demand and supply (review from Chapter 3). - Demand: a schedule showing the amounts of a good or service that buyer (or buyers) wish to purchase at various prices during some time period - Law of demand: the principle that, other things equal, an increase in a product’s price will reduce the quantity of it demanded, and conversely for a decrease in price - Supply: a schedule showing the amounts of a good or service that sellers (or seller) will offer at various prices during some period. - Law of supply: the principle that, other things equal, an increase in the price of a product will increase the quantity of its supplied, and conversely for a price decrease. Determine equilibrium price and quantity from supply and demand graphs and schedules (from Chapter 3). - Equilibrium Price: the price in a competitive market at which the Quantity Demanded and the Quantity Supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall. Define price elasticity of demand and compute the coefficient of elasticity given appropriate data on prices and quantities. - Price elasticity of demand: measures consumer response to price changes. Price elasticity of demand = % change in quantity demanded / % change in price of product - Elastic: if consumers are relatively sensitive to price changes, demand is elastic. - Inelastic: if consumers are relatively unresponsive to price changes Explain the meaning of elastic, inelastic, and unitary price elasticity of demand. - Elastic demand: large change in quantity purchased (demanded) for given price change; a specific percentage change in price results in a larger percentage change in quantity demanded that is greater than 1. Ed > 1 then its elastic - Inelastic demand: small change in quantity purchased for given price change (ex: necessities such as milk); percentage quantity demanded is less than 1 Ed < 1 then its inelastic - Unit elasticity: percentage quantity demanded equals 1 Ed = 1 then its unitary elasticity Recognize graphs of perfectly elastic and perfectly inelastic demand. - Perfectly elastic demand curve graph: horizontal

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a. Product or resource demand in which quantity demanded (Qd) can be of any amount at a particular product price - Perfectly inelastic demand graph: vertical a. Product or resource demand in which price can be of any amount at a particular quantity of the product or resource demanded; quantity demanded doesn’t respond to a change in price Use the totalrevenue test to determine whether elasticity of demand is elastic, inelastic, or unitary. -
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## This note was uploaded on 09/26/2011 for the course MICRO 212 taught by Professor Hoffman during the Spring '11 term at UNL.

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Exam 2 Review Sheet - Exam 2 Review Sheet Economics 212...

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