# Shared Flashcard Set

## Details

Microeconomics
chapter 6
20
Economics
07/18/2010

Term
 Price Elasticity of Demand
Definition
 -measures how responsive quantity demand (or the consumer) is to a price change
Term
 Price Elasticity of Demand Formula
Definition
 %change in QD / %change in P
Term
 Elastic
Definition
 a change in P leads to a LARGER % change in QD
Term
 Inelastic
Definition
 a change in P leads to a SMALLER % change in QD
Term
 The ease of substitution of a good...
Definition
 means that the good is ELASTIC
Term
 a perfectly elastic demand curve is...
Definition
 horizontal, and the elasticity equals ∞.
Term
 a perfectly inelastic demand curve is...
Definition
 vertical, the QD is the same regardless of P.
Term
 unit elastic demand
Definition
 % change in QD = % change in the P.
Term
 Necessity goods
Definition
 are in general, inelastic
Term
 Luxury goods
Definition
 are in general, elastic
Term
 the more time people have to adapt to a new P change...
Definition
 the greater the elasticity of demand, the more time people have to find suitable substitutes.
Term
 Total Revenue (TR)
Definition
 the P of the good • the Q of the good sold(P•Q)
Term
 if demand of a good is elastic, then TR increases as...
Definition
 P decreases
Term
 Price Elasticity of Supply
Definition
 measures how responsive the Q sellers are willing to sell is to changes in P, the change in the QS that results from a change in P
Term
 Price Elasticity of Supply Formula
Definition
 %change in QS / %change in P
Term
 Time is usually critical in...
Definition
 supply elasticities...b/c it is more costly for producers to bring forth and release resources in shorter periods of time.
Term
 Elastic Demand and the Law...congress' mistake
Definition
 in 1991, congress overestimated the elasticity of luxury items. They passed a 10% tax on some specific luxury goods thinking they would earn \$1.5 billion, in the end they only raised less than \$30 million
Term
 Government's war on drugs
Definition
 -large Q of illegal drugs were seized and traffickers arrested. decreasing the supply of illegal drugs.-P went up causing more less-severe crimes to occur to make up for the P change.
Term
 if recent sharp increases in the price of insulin have had only a small effect on the amount of insulin purchased, then the demand for insulin is...
Definition
 inelastic
Term
 if the total revenue decreases when the price is raised then the good is said to have...
Definition
 the elasticity of demand that is ELASTIC.
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