ECON 705 LSUS EXAM 3 2026 REVISION
NOTES AND STRUCTURED ADVANCED
ECONOMICS OVERVIEW GUIDE
◉ Law of Demand:
If price (P) ___ then Quantity Demanded (Qd) ___ Answer: Increases,
Decreases
◉ Perfectly Elastic Demand (equation) Answer: E^pd = infinity (any
P > P* will result in 0 Qd)
◉ Perfectly Inelastic Demand (equation) Answer: E^pd = 0 (P has no
affect on Qd)
◉ Elastic Demand (equation) Answer: E^pd > 1 (quantity effect
dominates)
◉ Inelastic Demand (equation) Answer: E^pd < 1 (price effect
dominates)
◉ Unit Elastic Demand (equation) Answer: E^pd = 1 (neither effect
dominates)
,◉ If demand is more elastic, then slope will be _____ (flatter/steeper)
Answer: Flatter
◉ The Midpoint Method equation Answer: | %∆Qd / %∆P |
◉ Expanded version of the Midpoint Method Formula : | %∆Qd /
%∆P | Answer: | Qb - Qa / (Qb + Qa)/2 | /
| Pb - Pa / (Pb + Pa)/2 |
◉ 5 Determinants of the Price Elasticity of Demand Answer: 1.
Availability of close substitutes
2. Passage of time
3. Luxuries vs. Necessities
4. Definition of market
5. Share of a good in a consumer's budget
◉ Availability of close substitutes:
More substitutes - more _______ demand Answer: Elastic
◉ Passage of time:
Longer time - more _______ demand Answer: Elastic
,◉ Luxuries vs. Necessities:
Luxury - more _______ demand Answer: Elastic
◉ Luxuries vs. Necessities:
Necessity - more _______ demand Answer: Inelastic
◉ Definition of market:
More narrowly defined - more price ______ Answer: Elastic
◉ Definition of market:
More broadly defined - more price ______ Answer: Inelastic
◉ Share of a good in a consumer's budget:
The larger the share - the more ______ Answer: Elastic
◉ Total Expenditure = Total Revenue = Answer: P x Q
◉ If demand is price elastic, then TR ___ as P ___ Answer: Decreases,
Increases
◉ If demand is price inelastic, then TR ___ as P ___ Answer: Increases,
Increases
, ◉ Which part of the Demand curve represents an elastic demand
(E^pd > 1) Answer: Upper half
◉ Which part of the Demand curve represents an inelastic demand
(E^pd < 1) Answer: Lower half
◉ Which point on the Demand curve represents Unit Elasticity
(E^pd = 1) Answer: Middle point (Qmax / 2)
◉ When P = $20 / Q = 200
When P = 40 / Q = 160
What happens to Total Expenditure if price increases from $20 to
$40? Answer: Use Midpoint Method
| %∆Qd / %∆P | = 1/3
TE is inelastic (E^pd < 1) so, TE increases as price increase
◉ Income Elasticity of Demand (how quantity demanded responds
to changes in income) Answer: E^id = %∆Qd / %∆I
◉ Inferior Goods (Income equation) Answer: E^id < 0
◉ Normal Goods (Income equation) Answer: E^id > 0
NOTES AND STRUCTURED ADVANCED
ECONOMICS OVERVIEW GUIDE
◉ Law of Demand:
If price (P) ___ then Quantity Demanded (Qd) ___ Answer: Increases,
Decreases
◉ Perfectly Elastic Demand (equation) Answer: E^pd = infinity (any
P > P* will result in 0 Qd)
◉ Perfectly Inelastic Demand (equation) Answer: E^pd = 0 (P has no
affect on Qd)
◉ Elastic Demand (equation) Answer: E^pd > 1 (quantity effect
dominates)
◉ Inelastic Demand (equation) Answer: E^pd < 1 (price effect
dominates)
◉ Unit Elastic Demand (equation) Answer: E^pd = 1 (neither effect
dominates)
,◉ If demand is more elastic, then slope will be _____ (flatter/steeper)
Answer: Flatter
◉ The Midpoint Method equation Answer: | %∆Qd / %∆P |
◉ Expanded version of the Midpoint Method Formula : | %∆Qd /
%∆P | Answer: | Qb - Qa / (Qb + Qa)/2 | /
| Pb - Pa / (Pb + Pa)/2 |
◉ 5 Determinants of the Price Elasticity of Demand Answer: 1.
Availability of close substitutes
2. Passage of time
3. Luxuries vs. Necessities
4. Definition of market
5. Share of a good in a consumer's budget
◉ Availability of close substitutes:
More substitutes - more _______ demand Answer: Elastic
◉ Passage of time:
Longer time - more _______ demand Answer: Elastic
,◉ Luxuries vs. Necessities:
Luxury - more _______ demand Answer: Elastic
◉ Luxuries vs. Necessities:
Necessity - more _______ demand Answer: Inelastic
◉ Definition of market:
More narrowly defined - more price ______ Answer: Elastic
◉ Definition of market:
More broadly defined - more price ______ Answer: Inelastic
◉ Share of a good in a consumer's budget:
The larger the share - the more ______ Answer: Elastic
◉ Total Expenditure = Total Revenue = Answer: P x Q
◉ If demand is price elastic, then TR ___ as P ___ Answer: Decreases,
Increases
◉ If demand is price inelastic, then TR ___ as P ___ Answer: Increases,
Increases
, ◉ Which part of the Demand curve represents an elastic demand
(E^pd > 1) Answer: Upper half
◉ Which part of the Demand curve represents an inelastic demand
(E^pd < 1) Answer: Lower half
◉ Which point on the Demand curve represents Unit Elasticity
(E^pd = 1) Answer: Middle point (Qmax / 2)
◉ When P = $20 / Q = 200
When P = 40 / Q = 160
What happens to Total Expenditure if price increases from $20 to
$40? Answer: Use Midpoint Method
| %∆Qd / %∆P | = 1/3
TE is inelastic (E^pd < 1) so, TE increases as price increase
◉ Income Elasticity of Demand (how quantity demanded responds
to changes in income) Answer: E^id = %∆Qd / %∆I
◉ Inferior Goods (Income equation) Answer: E^id < 0
◉ Normal Goods (Income equation) Answer: E^id > 0
