Ch.6 Vocab

Question 1

Price elasticity of demand

Answer 1

The percentage change in quantity demanded divided by the percentage change in price
ED = (percentage change in quantity demanded)/(percentage change in price)

Question 2

Price elasticity of supply

Answer 2

The percentage change in quantity supplied divided by the percentage change in price
ES = (percentage change in quantity supplied)/(percentage change in price)

Question 3

Elastic

Answer 3

Percentage change in quantity is greater than the percentage change in price
E > 1

Question 4

Inelastic

Answer 4

Percentage change in quantity is less than the change in price
E < 1

Question 5

Perfectly inelastic

Answer 5

Quantity does not respond at all to changes in price

E = 0

Question 6

Perfectly elastic

Answer 6

Quantity responds enormously to changes in price

E = ∞

Question 7

Unit elastic

Answer 7

The percentage change in quantity equals the percentage change in price
E = 1

Question 8

Income elasticity of demand

Answer 8

The percentage change in demand divided by the percentage change in income
(percentage change in demand)/(percentage change in income)

Question 9

Normal goods

Answer 9

Goods whose consumption increases with an increase in income

Question 10

Luxuries

Answer 10

Goods that have an income elasticity greater than 1

Question 11

Necessity

Answer 11

A good that has an income elasticity between 0 and 1

Question 12

Inferior goods

Answer 12

Goods whose consumption decreases when income increases

Question 13

Cross-price elasticity of demand

Answer 13

The percentage change in demand divided by the percentage change in the price of a related good
(percentage change in demand)/(percentage change in price of related good)

Question 14

Substitute

Answer 14

Goods that can be used in place of one another

Question 15

Complements

Answer 15

Goods that are used in conjunction with other goods