Ch 3. Elasticities

Question 1

Elasticity

Answer 1

The measure of the responsiveness of sensitivity of a variable to changes in any of the variable’s determinants

Question 2

Price Elasticity of Demand (PED)

Answer 2

The measure of the responsiveness of the quantity of a good demanded to changes in its price.

Question 3

PED Formula

Answer 3

((QFinal - Qintial) / Q inital) / ((PFinal - Pinital) / Pinital)

Question 4

Price Inelastic

Answer 4

Relatively low responsiveness of demand to changes in Price (Ex. Insulin)

Question 5

Price Elastic

Answer 5

Relatively high responsiveness of quantity demanded to changes in price (Ex. Clothing)

Question 6

Perfectly Inelastic

Answer 6

Price elasticity of demand value of zero, and arises in the case of a vertical demand curve indicating that any amount can be sold at that price

Question 7

Perfectly Elastic

Answer 7

Refers to a price elasticity of demand value of infinity, and arises in the case of a horizontal demand curve indicating that any quantity can be bought at that price

Question 8

Necessities

Answer 8

Goods or services we consider to be essential or necessary in our lives

Question 9

Luxuries

Answer 9

Not necessary or essential

Question 10

Total Revenue

Answer 10

TR = P x Q

Question 11

PED > 1

Answer 11

Demand is elastic

Question 12

PED < 1

Answer 12

Demand in inelastic

Question 13

PED = 1

Answer 13

Unit elastic

Question 14

Primary Commodities

Answer 14

Goods arising directly from the use of natural resources

Question 15

Manufactures products

Answer 15

Goods produced by labor usually working together with capital as well as raw materials

Question 16

Income Elasticity of Demand (YED)

Answer 16

Measure of the responsivness of demand to changes in income, and involves demand curve shifts

Question 17

YED Formula

Answer 17

((Qfinal - Qinital)/Qinital) / ((Yfinal - Yinital)/Yinital)

Question 18

YED > 0

Answer 18

Positive Income elasticity of demand indicates that the good in question is normal

Question 19

YED < 0

Answer 19

Negative income elasticity of demand indicates that the good in inferior

Question 20

Income Inelastic Demand

Answer 20

YED < 1, Necessities. Relatively low responsiveness of demand to changes in income

Question 21

Income Elastic Demand

Answer 21

YED > 1, Luxuries and services. Relatively high responsiveness of demand to changes in income

Question 22

Engel Curve

Answer 22

Curve that shows the relationship between consumer income and demand for a product

Question 23

Price Elasticity of Supply (PES)

Answer 23

Measure of the responsiveness of the quantity of a good supplied to changes inits price

Question 24

PES Formula

Answer 24

((QFinal - Qinital) / Qinital) / ((Pfinal - Pinital) / Pinital)

Question 25

PES < 1

Answer 25

Price inelastic. Percentage change in quantity supplied is smaller than the percentage change in price

Question 26

PES > 1

Answer 26

Price elastic. The percentage change in quantity supplied is larger than the percentage change in price.

Question 27

PES = 1

Answer 27

Unit Elastic

Question 28

PES = 0

Answer 28

Perfectly inelastic, price elasticity of supply value of zero, and arises in the case of a vertical supply curve