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ECO 251 Study Guide for Unit Test Two 09

# ECO 251 Study Guide for Unit Test Two 09 - Chapter 5 1...

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Micro Exam Two Study Guide! Chapter 5 1. Definition of Price Elasticity of Demand: Page 90. A measure of how much the quantity demanded of a good responds to a change in the price. 2. Midpoint Method Formula: Page 92 (Hint: you have to calculate price elasticity of demand by using midpoint method formula). QuickTimeª and a decompressor are needed to see this picture. 3 - 5. Total Revenue and Elasticity of Demand – Refer to pages 94 & 95 – 3 bullet points towards bottom of page: (Hint: you should know inelastic demand and total revenue, elastic demand and total revenue and unit elastic demand and total revenue). QuickTimeª and a decompressor are needed to see this picture. QuickTimeª and a decompressor are needed to see this picture. 6. Negative Income Elasticity “Good is inferior”: Page 97; last sentence of the last paragraph. If income elasticity is negative then the good is inferior 7. Positive Income Elasticity “Good is normal: Page 97; second sentence of last paragraph. If income elasticity is positive then the good is normal. 8. Cross price elasticity is negative when “2 goods are compliments” Page 99; see under The Cross-Price Elasticity of Demand. Cross price elasticiy is negative when two goods are compliments because a rise in the price of one precipitates a fall in the quantity demanded of the other. 9. Cross price elasticity is positive when “2 goods are substitutes”: ” Page 99; see under The Cross-Price Elasticity of Demand. Cross price elasticity is positive when 2 goods are substitutes because the rise in the price of one causes customers to demand a higher quantity of substitutable good.

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ECO 251 Study Guide for Unit Test Two 09 - Chapter 5 1...

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