Chapter 11: Market demand

Question 1

the price elasticity of demand

Answer 1

price elasticity of demand is the percent change in quantity divided by
the percent change in price.

Question 2

market demand (def)

Answer 2

The market demand for
good 1 is the sum of these individual demands over all consumers. Market demand depends on prices and the distribution of income.

Question 3

When will an increase in price result in an increase in revenue?

Answer 3

Revenue increases when price increases if demand is inelastic. If demand is very
unresponsive to price, then an increase in price will not change demand very
much, and overall revenue will increase

Question 4

Constant elasticity demands

Answer 4

f the revenue remains constant for all changes in price, we must have a
demand curve that has an elasticity of -1 everywhere.

Question 5

For a constant elasticity demand function, the marginal revenue curve will depende on / change when ….

Answer 5

When |ep| = 1, the MR curve is constant at zero. When |ep| > 1, the MR curve
lies below the inverse demand curve. When |ep| < 1, the MR is negative.
(e = elasticity)

Question 6

The income elasticity of demand is:

Answer 6

• negative for inferior goods
• positive for normal goods
• larger than 1 for luxury goods