ECO 201 EXAM 2
1. a measure that indicates the degree of consumer response to a price change: price
elasticity of demand
2. what is price elasticity of demand also known as: how sensitive/ responsive are consumers to
price change
3. price elasticity of demand equals... =: Ed= % change in quantity demanded/ % change in price
4. what is the midpoint formula for price elasticity of demand?: Q1-Q0/ (Q1+Q0) over P1-
P0/ (P1+P0)
5. when you do the midpoint formula for price elasticity of demand what does that number interpret?:
if price increases by 1%, quantity demanded decreases by 3%, this number shows the
responsiveness. therefore, if price decreases by 15% quantity demand will increase by 45%.
HOW PRICE IMPACTS QUANTITY DEMAND
6. if I Ed I > 1 demand is...: elastic, aka % of change in quantity is > than the % of change in
price, very responsive
7. if I Ed I < 1 demand is...: inelastic, aka % of change in quantity is < the percentage of change in
price, less responsive
8. if I Ed I = 1 demand is...: unitary elastic, aka % of change in quantity is = to % of change in
price
9. Can elasticity be seen along a linear curve?: yes
10.when it comes to a graph, where is elasticity usually on the line curve: Ed
> 1, elastic on the top: Ed = 1, unit elastic in the middle: Ed < 1, inelastic on the bottom
11.where would salt vs tvs be on the demand curve: salt would be on the bottom because it is a
lower price while tvs are a higher price on the top
12.on the top part of the demand curve the percentage change of quantity demand tends to be
greater compared to the bottom portion of the demand curve: true
13.are slope and elasticity the same thing?: no
14.what can help you compare elasticity?: comparing relative slopes of two demand curves
15.steeper the slope of a product...: the more inelastic the demand to be
16.flatter the slope of the demand curve...: the more elastic we presume the demand to be
17.which is more inelastic, the demand for cigarettes or the demand for potato chips: cigarettes
since its addictive if price changes would it change the behavior much, no so it would be more
inelastic. for potato chips we could find more substitues aka more elastic
18.steeper the slope=: inelastic
, ECO 201 EXAM 2
19.flatter the slope =: elastic
20.extreme cases of demand means: completely vertical demand curve or a perfectly
horizontal demand curve
21.if we have a perfectly vertical curve...: its perfectly inelastic demand, Ed=0
22.if we have a perfectly horizontal curve...: its perfectly elastic demand, Ed = inf
23.some examples of inelastic products: health products such as insulin, since the changes of
price doesn't change the consumption
24.an example of an elastic: $10
25.what determines if a product is inelastic or elastic, 4 determinates: 1. the availability of
substitutes 2. necessity or luxury 3. time horizon 4. definition of the market
26.give an example of the availability of substitutes: mcdonalds vs savs grill west african cuisine:
you cant get west african cuisine anywhere else in lexington, so if they raise their prices you
cant go anywhere else so you would continue to go there, vs mcdonalds if they raised their
prices you could go to a burger king and other options
27.more substitutes for a product means...: its more elastic
28.less substitutes means...: less elastic
29.if it's a necessity would it be easy to find a substitutes for that good?: prob- ably not, more
inelastic
30. if its a luxury good and prices change could you find a substitute to replace that luxury
good: yes, lots of options available if its a luxury, more substitutes, more elastic
31.time horizon/time implies...: from when the price change
32.two time horizons and what is it known as: short run and long run... depends on consumers
response to price change
33.short run time change means: tend to have consumers response to price changes to be
very small, inelastic
34.why in the short run is it inelastic?: consumers have less time to adjust their behavior and
find other alternatives
35.why is the long run more elastic?: you have more time to find more substitutes so their will be
big changes
36.in the 1970's the price of gas increased significantly, what were the short run and long run
reactions: short run: people carpooled and cut vacations, small changes long run reaction: move
closer to their job, more electric cars
37.when you define the market to be very narrow, more specific classifica- tion...: more
substitutes, more elastic
1. a measure that indicates the degree of consumer response to a price change: price
elasticity of demand
2. what is price elasticity of demand also known as: how sensitive/ responsive are consumers to
price change
3. price elasticity of demand equals... =: Ed= % change in quantity demanded/ % change in price
4. what is the midpoint formula for price elasticity of demand?: Q1-Q0/ (Q1+Q0) over P1-
P0/ (P1+P0)
5. when you do the midpoint formula for price elasticity of demand what does that number interpret?:
if price increases by 1%, quantity demanded decreases by 3%, this number shows the
responsiveness. therefore, if price decreases by 15% quantity demand will increase by 45%.
HOW PRICE IMPACTS QUANTITY DEMAND
6. if I Ed I > 1 demand is...: elastic, aka % of change in quantity is > than the % of change in
price, very responsive
7. if I Ed I < 1 demand is...: inelastic, aka % of change in quantity is < the percentage of change in
price, less responsive
8. if I Ed I = 1 demand is...: unitary elastic, aka % of change in quantity is = to % of change in
price
9. Can elasticity be seen along a linear curve?: yes
10.when it comes to a graph, where is elasticity usually on the line curve: Ed
> 1, elastic on the top: Ed = 1, unit elastic in the middle: Ed < 1, inelastic on the bottom
11.where would salt vs tvs be on the demand curve: salt would be on the bottom because it is a
lower price while tvs are a higher price on the top
12.on the top part of the demand curve the percentage change of quantity demand tends to be
greater compared to the bottom portion of the demand curve: true
13.are slope and elasticity the same thing?: no
14.what can help you compare elasticity?: comparing relative slopes of two demand curves
15.steeper the slope of a product...: the more inelastic the demand to be
16.flatter the slope of the demand curve...: the more elastic we presume the demand to be
17.which is more inelastic, the demand for cigarettes or the demand for potato chips: cigarettes
since its addictive if price changes would it change the behavior much, no so it would be more
inelastic. for potato chips we could find more substitues aka more elastic
18.steeper the slope=: inelastic
, ECO 201 EXAM 2
19.flatter the slope =: elastic
20.extreme cases of demand means: completely vertical demand curve or a perfectly
horizontal demand curve
21.if we have a perfectly vertical curve...: its perfectly inelastic demand, Ed=0
22.if we have a perfectly horizontal curve...: its perfectly elastic demand, Ed = inf
23.some examples of inelastic products: health products such as insulin, since the changes of
price doesn't change the consumption
24.an example of an elastic: $10
25.what determines if a product is inelastic or elastic, 4 determinates: 1. the availability of
substitutes 2. necessity or luxury 3. time horizon 4. definition of the market
26.give an example of the availability of substitutes: mcdonalds vs savs grill west african cuisine:
you cant get west african cuisine anywhere else in lexington, so if they raise their prices you
cant go anywhere else so you would continue to go there, vs mcdonalds if they raised their
prices you could go to a burger king and other options
27.more substitutes for a product means...: its more elastic
28.less substitutes means...: less elastic
29.if it's a necessity would it be easy to find a substitutes for that good?: prob- ably not, more
inelastic
30. if its a luxury good and prices change could you find a substitute to replace that luxury
good: yes, lots of options available if its a luxury, more substitutes, more elastic
31.time horizon/time implies...: from when the price change
32.two time horizons and what is it known as: short run and long run... depends on consumers
response to price change
33.short run time change means: tend to have consumers response to price changes to be
very small, inelastic
34.why in the short run is it inelastic?: consumers have less time to adjust their behavior and
find other alternatives
35.why is the long run more elastic?: you have more time to find more substitutes so their will be
big changes
36.in the 1970's the price of gas increased significantly, what were the short run and long run
reactions: short run: people carpooled and cut vacations, small changes long run reaction: move
closer to their job, more electric cars
37.when you define the market to be very narrow, more specific classifica- tion...: more
substitutes, more elastic
