Chapter 4

Question 1

Elasticity

Answer 1

Measure of how buyers & sellers respond to change in market conditions

Question 2

General Elasticity Equation:

Answer 2

(percent change in Q)/(percent change in determinant)

Question 3

Coefficient of elasticity equation

Answer 3

(percent change quantity)/(percent change price)

Question 4

Own-Price elasticity of demand (Ep)

Answer 4

Measures how demanded quantity responds when selling price changes

Question 5

Percent Change =

Answer 5

(After - before)/before

Question 6

Income elasticity of demand

Answer 6

Measures how quantity demanded responds when income of consumers changes

Question 7

Cross-price elasticity of demand

Answer 7

Measure of quantity demanded responds when the selling price of another good changes

Question 8

Income elasticity of demand equation

Answer 8

En = (percent change in quantity demanded)/( percent change in income)

Question 9

If income elasticity of demand is positive, then…

Answer 9

It’s a normal good

Question 10

If income elasticity of demand is negative, then…

Answer 10

It’s an inferior good

Question 11

Cross-price elasticity of demand equation

Answer 11

Ea,b = (percent change in quantity)/(percent change in price of related good)

Question 12

Price elasticity of supply

Answer 12

Measures how quantity supplies responds when selling price changes

Question 13

Price elasticity of supply equation

Answer 13

Es = (percent change in quantity supplied)/(percent change in price)

Question 14

Examples of goods with elastic demand are:

Answer 14

Luxury goods, goods with close substitutes, goods that take a large portion of your budget, narrowly defined goods

Question 15

Examples of goods with inelastic demand are:

Answer 15

Necessities, goods with no close substitutes, goods that take a small portion of your budget, goods that are broadly defined

Question 16

Examples of goods with elastic supply are:

Answer 16

Goods whose factors of production are readily available & mobile, goods that can be easily stored, and goods with short & simple production process

Question 17

Examples of goods with inelastic supply are:

Answer 17

Goods whose factors of production are difficult to obtain & move, goods that can’t be stored easily, and goods that take a long time to produce or have a complicated process

Question 18

Point elasticity

Answer 18

Measure the impact of a marginal change in price on quantity demanded

Question 19

Equation for point elasticity

Answer 19

Ep = (dQ/dP)(P/Q)