2.6 Elasticities

Question 1

Elasticity

Answer 1

A measure of the sensitivity of one variable to changes in another variable

Question 2

Price elasticity of demand

Answer 2

A measure of the sensitivity of quantity demanded to a change in the price of a good or service

Question 3

Elastic PED

Answer 3

A term used when PED is greater than 1 but less than infinity

Question 4

Inelastic PED

Answer 4

A term used when the PED is less that 1 but greater than 0

Question 5

Unit PED

Answer 5

A term used when PED is equal to 1

Question 6

Total revenue

Answer 6

The revenue recived by a frimfrom its sales of a good or service - it is the quantity sold multiplied by the price

Question 7

Price Elasticity of supply

Answer 7

A measure of the responsiveness of quantity suppied to a change in the price of that good or service

Question 8

Perfectly inelastic supply

Answer 8

A situation in which firms can supply only a fixed quantity so cannot increase or decrease the amount available; elasticity of supply is 0

Question 9

Perfectly elastic supply

Answer 9

A situation in which firms will supply any good at the going price; elasticity of supply is infinite

Question 10

Inferior good

Answer 10

One where the quantity demanded decreases in response to an increase in consumer incomes

Question 11

Normal good

Answer 11

One where quantity demanded increases in response to an increase in consumer incomes

Question 12

Superior good

Answer 12

One for which the income elasticity of demand is positive and greater than 1, such that as income rises consumers spend proportionally more on the good

Question 13

Income elasticity of demand

Answer 13

A measure of the sensitivity of quantity demanded to a change in consumer incomes

Question 14

Cross elasticity of demand

Answer 14

A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service