04 Elasticity

Question 1

Price elasticity of demand

Answer 1

The percentage change in quantity demanded from a 1% change in price

Question 2

If price elasticity is greater than 1..

Answer 2

Demand is elastic (percentage change in quantity is greater than percentage change in price, demand is responsive to price)

Question 3

Formula for Elasticity

Answer 3

E = percentage change in quantity demanded / percentage change in price

Question 4

If price elasticity is less than 1..

Answer 4

Demand is inelastic (percentage change in quantity is less than percentage change in price, quantity demanded is not very responsive to price)

Question 5

If price elasticity is 1..

Answer 5

Demand is unit elastic (price and quantity change by the same percentage)

Question 6

Determinant of price elasticity of demand (sub..)

Answer 6

Substitution options (more options, more elastic)

Question 7

Determinant of price elasticity of demand (budg..)

Answer 7

Budget share (large share, more elastic)

Question 8

Determinant of price elasticity of demand (time..)

Answer 8

Long time to adjust, more elastic

Question 9

Formula at a given point (graph)

Answer 9

E = P/Q x 1/slope

Question 10

When two demand curves cross..

Answer 10

At common point demand is less price elastic for steeper curve

Question 11

The more substitutes a good has..

Answer 11

The higher the price elasticity of demand will be as consumers can readily switch to or away from them if their price changes

Question 12

Perfectly inelastic demand

Answer 12

The quantity demanded does not change when price changes (zero price elasticity along vertical demand)

Question 13

The price elasticity of supply

Answer 13

Percentage change in quantity supplied from a 1 percent change in price.
(P/Q) x (1/slope)

Question 14

Income elasticity of demand for a good..

Answer 14

Is the percentage by which quantity demanded changes in response to a one percent change in income.

Question 15

Perfectly elastic demand

Answer 15

The price does not change when the quantity demanded changes (infinite price elasticity along horizontal line)

Question 16

Total expenditure

Answer 16

= total revenue (price x quantity)

Question 17

Cross price elasticity of demand

Answer 17

The percentage change in quantity demanded of good A from a 1 percent change in the price of good B (shows relationship between the goods)

Question 18

Complements

Answer 18

Have negative cross-price elasticity (an increase in price of one will lead to decrease in demand of other)

Question 19

Substitutes

Answer 19

Have positive cross-price elasticity (increase in price of one will lead to increase in demand of other)

Question 20

If supply curve has a positive intercept…

Answer 20

Price elasticity of supply decreases as Q increases

Question 21

If supply curve has a zero intercept..

Answer 21

Price elasticity of supply is 1.00

Question 22

Determinant of price elasticity of supply (inp..)

Answer 22

Input flexibility (uses adaptable inputs, more elastic)

Question 23

Determinant of price elasticity of supply (mob..)

Answer 23

Mobility of inputs (resources move where needed, more elastic)

Question 24

Determinant of price elasticity of supply (prod..)

Answer 24

Produce substitute inputs (alternative inputs easy to find, more elastic)

Question 25

Determinant of price elasticity of supply (time..)

Answer 25

Time (long run, more elastic)

Question 26

Total revenue…

Answer 26

Is highest when demand is unit elastic (when price elasticity of demand = 1)

Question 27

An increase in total revenue occurs…

Answer 27

If an increase in price leads to a relative small percentage drop in quantity demanded (that is, if demand is inelastic)

Question 28

Total revenues increase when..

Answer 28

Price increases if demand is inelastic with respect to price.

Question 29

If there are few substitutes for a good..

Answer 29

Quantity demanded will then change very little in response to a change in price

Question 30

Income elasticity of demand will be negative..

Answer 30

If an increase in income leads to a decrease in demand (or decrease in income leads to increase in demand)

Question 31

When consumers have more time to adapt to a price change..

Answer 31

The change in quantity demanded will be higher, implying that the price elasticity of demand will be higher in long run than short run

Question 32

Along a linear demand curve..

Answer 32

Slope is constant and as price increases (quantity falls) P/Q will rise and increase elasticity of demand

Question 33

Along a straight-line demand curve..

Answer 33

The price elasticity of demand at the midpoint is always equal to one.

Question 34

Goods that account…

Answer 34

For a small share of a person’s budget have a lower price elasticity of demand than do goods that account for a large share of a person’s budget.