CH.4 ELASTICITY

Question 1

Price Supply Elasticity

Answer 1

Measures the responsiveness of quantity supplied to a change in price.

Question 2

Buyers have no time to adjust to a change in the market. Demand is inelastic.

Answer 2

Immediate Run

Question 3

Buyers have a significant amount of time to adjust to a change in the market. Demand is elastic.

Answer 3

Long Run

Question 4

Demand is somewhat elastic. Buyers have some time to adjust to a change in the market.

Answer 4

Short Run

Question 5

How does an increase of income affect spending on necessities and luxuries?

Answer 5

As income increases, spending on luxuries increases dramatically, but spending on necessities increases slowly.

Question 6

What are the determinants of the price elasticity of supply?

Answer 6

The flexibility of producers

Time and the adjustment process

Question 7

Which determinants influence whether demand is elastic or inelastic?

Answer 7

The existence of substitutes

The share of the budget spent on the good

Necessities versus luxury goods

Time and the adjustment process

Question 8

Why might a producer be willing to sell a product at a price that leads to little or no profit on that product?

Answer 8

May be able to sell additional complementary products

Question 9

How does the existence of substitutes affect the price elasticity of demand?

Answer 9

If there are many substitutes. the price elasticity of the good will be elastic.