Chapter 3: ELASTICITY

Question 1

A concept in economics that measures responsiveness of one variable to changes in another variable

Answer 1

elasticity

Question 2

When an increase in price reduces the quantity demanded by a lot (and vice versa); when the elasticity of demand is more than one, |Ed| > 1

Answer 2

elastic

Question 3

When the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

Answer 3

elastic demand

Question 4

When the elasticity of supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

Answer 4

elastic supply

Question 5

When the same increase in price reduces the quantity demanded just a little; when the elasticity of demand is less than one, |Ed| < 1

Answer 5

inelastic

Question 6

When the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes

Answer 6

inelastic demand

Question 7

When the elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)

Answer 7

inelastic supply

Question 8

When there are so many substitutes that even with a small increase in price, demand stops

Answer 8

perfectly elastic demand

Question 9

The number of units demanded does not depend on price at all

Answer 9

perfectly inelastic demand

Question 10

The percentage change in quantity demanded divided by the percentage change in price

Answer 10

price elasticity of demand

Question 11

When the elasticity of demand equals one, |Ed| = 1

Answer 11

unit elastic

Question 12

When the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied

Answer 12

unitary elasticity

Question 13

Using the average percent change in both quantity and price to calculate elasticity along a demand or supply curve

Answer 13

the midpoint method

Question 14

Manner in which the tax burden is divided between buyers and sellers

Answer 14

tax incidence

Question 15

When price increases, revenue on units sold increases

Answer 15

the price effect

Question 16

When price increases, fewer units are sold

Answer 16

the quantity effect

Question 17

The per-unit price multiplied by the number of units sold; (TR) = Price (P) x Quantity Demanded (Q)

Answer 17

total revenue

Question 18

The quantity supplied can be expanded by a lot in response to small price changes

Answer 18

perfectly elastic supply

Question 19

No matter what the selling price is, the quantity supplied does not change

Answer 19

perfectly inelastic supply

Question 20

The percent change in quantity supplied divided by the percent change in price

Answer 20

price elasticity of supply

Question 21

When a given percent change in price leads to an equal percentage change in quantity demanded or supplied

Answer 21

constant unitary elasticity

Question 22

The Midpoint Method

Answer 22

Q2-Q1 / (Q2+Q1 / 2) X 100 divided by P2-P1 / (P2+P1 / 2) X 100

Question 23

Price Elasticity of Demand

Answer 23

% change in quantity demanded / % change in price

Question 24

Price Elasticity of Supply

Answer 24

% change in Qs / % change in price

Question 25

Cross Price Elasticity of Demand

Answer 25

% change in Qd of good A / % change in price of good B

Question 26

Two different brands of soda would have ________ cross-price elasticities of demand. (negative or positive)

Answer 26

positive (substitute goods)

Question 27

Tennis balls and tennis rackets would have

_______ cross-price elasticities of demand. (negative or positive)

Answer 27

negative (complement goods)

Question 28

Income Elasticity of Demand

Answer 28

% change in Qd / % change in income

Question 29

income-elastic goods, meaning if a buyer’s income increases by 1%, their quantity demanded of these goods goes up by more than 1%.

Answer 29

luxury goods

Question 30

income-inelastic goods, meaning if a buyer’s income increases by 1%, their quantity demanded of these goods still goes up, but it goes up by less than 1%.

Answer 30

necessity goods

Question 31

Elasticity of Labor Supply

Answer 31

% change in Q of labor supplied / % change in wage

Question 32

Wage Elasticity of Labor Supply

Answer 32

% change in hours worked / % change in wage

Question 33

Elasticity of Savings

Answer 33

% change in Q of Financial Savings / % change in interest rate