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1 Price Elasticity of Demand Free Online FlashCards

Study 1 Price Elasticity of Demand with 12 free online flashcards. Review key terms, definitions, and concepts with this interactive flashcard deck.

12 cards
01
Front

What does price elasticity of demand measure?

Back

It measures how responsive the quantity demanded of a good or service is to a change in its price.

02
Front

How is price elasticity of demand calculated?

Back

Divide the percentage change in quantity demanded by the percentage change in price: Ed=% change in quantity demanded% change in priceE_d = \frac{\%\text{ change in quantity demanded}}{\%\text{ change in price}}.

03
Front

Why is signed price elasticity of demand usually negative?

Back

It is usually negative because price and quantity demanded move in opposite directions under the law of demand.

04
Front

Which value is commonly used to classify elasticity?

Back

Economists commonly use its absolute value, ∣Ed∣|E_d|, as a positive number to classify responsiveness.

05
Front

When is demand elastic?

Back

Demand is elastic when ∣Ed∣>1|E_d| > 1: quantity demanded changes by a greater percentage than price.

06
Front

When is demand inelastic?

Back

Demand is inelastic when ∣Ed∣<1|E_d| < 1: quantity demanded changes by a smaller percentage than price.

07
Front

When is demand unit-elastic?

Back

Demand is unit-elastic when ∣Ed∣=1|E_d| = 1: quantity demanded and price change by the same percentage.

08
Front

How is a basic percentage change calculated?

Back

Use % change=new value−initial valueinitial value×100\%\text{ change} = \frac{\text{new value} - \text{initial value}}{\text{initial value}} \times 100.

09
Front

What problem can using the initial value as the base create?

Back

Using the initial value as the base can produce different elasticity results when measuring the same change forward or backward.

10
Front

What is the midpoint formula for percentage change in quantity demanded?

Back

Use Q2−Q1(Q1+Q2)/2×100\frac{Q_2-Q_1}{(Q_1+Q_2)/2} \times 100, where the average of the two quantities is the base.

11
Front

What is the midpoint formula for percentage change in price?

Back

Use P2−P1(P1+P2)/2×100\frac{P_2-P_1}{(P_1+P_2)/2} \times 100, where the average of the two prices is the base.

12
Front

What directional advantage does the midpoint method provide?

Back

The midpoint method gives the same elasticity when moving between the same two points in either direction.