{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Test 2 Review

# Test 2 Review - Review Chapter 5 6 13 Chapter 5 Elasticity...

This preview shows pages 1–9. Sign up to view the full content.

Review Chapter 5, 6, 13

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Chapter 5: Elasticity Basic idea: Elasticity measures how much one variable responds to changes in another variable. Price elasticity of demand = Percentage change in Qd Percentage change in P Price elasticity of supply = Percentage change in Qs Percentage change in P
Midpoint Method: end value – start value midpoint x 100%

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
E L A S T C Y N D S P O 4 Calculating Percentage Changes Using the midpoint method, the % change in P equals \$250 – \$200 \$225 x 100% = 22.2% § The % change in Q equals 12 – 8 10 x 100% = 40.0% § The price elasticity of demand equals 40/22.2 = 1.8
E L A S T C Y N D S P O 5 The Determinants of Price Elasticity: A Summary The price elasticity of demand depends on: the extent to which close substitutes are available whether the good is a necessity or a luxury how broadly or narrowly the good is defined the time horizon – elasticity is higher in the long run than the short run

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
E L A S T C Y N D S P O 6
E L A S T C Y N D S P O 7 If demand is elastic, Increase price, revenue falls Decrease price, revenue increases If demand is inelastic, Increase price, revenue increases Decrease price, revenue falls

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
E L A S T C Y N D S P O 8 Other Elasticities
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}