MicroeconomicsLesson 3 of 4 in the course Elasticity

Demand Elasticity in Pricing, Taxes, and Market Adjustment

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Price elasticity of demand helps explain how strongly buyers respond when a product’s price changes. This lesson introduces how to interpret elasticity and why responsiveness differs across goods and services.

Price elasticity of demand measures the percentage change in quantity demanded in response to a percentage change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Because price and quantity demanded usually move in opposite directions, economists commonly describe elasticity using its absolute value.

All flashcards

Price elasticity of demand
The percentage change in quantity demanded divided by the percentage change in price.
Total revenue
The money a seller receives from sales before subtracting costs; price multiplied by quantity sold.
Tax incidence
How the economic burden of a tax is divided between consumers and producers.
Unitary elastic demand
Demand for which price and quantity demanded change by equal percentages.
Why can a venue's capacity limit affect ticket pricing?
The seller cannot increase ticket sales beyond the number of available seats.

Quiz questions

  1. How is total revenue calculated?Answer: Price multiplied by quantity sold.
  2. If demand is elastic at the current price, what usually happens to total revenue when price rises?Answer: Total revenue falls because quantity demanded drops proportionally more.
  3. When production costs fall, how does market supply typically change?Answer: The supply curve shifts right, increasing supply at each price.
  4. Which side of a market tends to bear more of a tax?Answer: The side that is more inelastic.
  5. Why can consumers' demand for energy become more elastic over time?Answer: They can adopt alternatives such as efficient cars or home insulation.

Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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