chapter 4

Question 1

Why do some buyers decrease purchases significantly when prices increase, while others only slightly reduce their purchases?

Answer 1

It depends on how much the demand for a product changes when its price changes

Question 2

Price elasticity of demand

Answer 2

This measures how people react when the price of something changes, without anything else changing.

Question 3

how to calc price elasticty of demand

Answer 3

(% change in quantity demanded) / (% change in price)

Question 4

When price of a product increase

Answer 4

quantity demanded usually decreases
Because a price increase leads to a decrease in demand

Question 5

price elasticity of demand is represented

Answer 5

by negative number

Question 6

To compare demand elasticities…

Answer 6

, we focus on the magnitude + ignore the minus sign.

Question 7

how can Demand can be categorized

Answer 7

inelastic, unit elastic, or elastic, ranging from zero to infinity.

Question 8

perfectly inelastic demand

Answer 8

If quantity demanded remains unchanged when price changes which means is also price elasticity of demand is zero

Question 9

Example of a good that has a perfectly inelastic demand

Answer 9

the demand curve is vertical line

Question 10

A good has a Unit elastic demand…

Answer 10

If percentage change in quantity demanded equals percentage change in price→ the price elasticity of demand equal 1

Question 11

price elasticity of demand is infinite.

Answer 11

When the quantity demanded changes a lot in response to a tiny change in price meaning

Question 12

ercentage change in quantity demanded is smaller than percentage change in price:

Answer 12

price elasticity of demand is less than 1 → shows its inelastic demand for the good

Question 13

percentage change in the quantity demanded is greater than percentage change in price:

Answer 13

price elasticity of demand is greater than 1 → elastic demand for the good

Question 14

Factors that influence elasticity of demand

Answer 14

Closeness of substitutes
Proportion of income spent on the good
Time that’s gone by since a price change

Question 15

At mid point of demand curve

Answer 15

demand is unit elastic

Question 16

At price above midpoint of demand curve→demand = ?

Answer 16

elastic

Question 17

At prices below midpoint of demand curve→ demand is

Answer 17

inelastic

Question 18

Total revenue from sale of good/service equals

Answer 18

price of good multiplied by quantity sold

Question 19

When price changes→ total revenue …

Answer 19

changes

Question 20

rise in price doesnt always inc total reveneu

Answer 20

true

Question 21

Change in total revenue due to change in price depends on

Answer 21

elasticy of demand

Question 22

If demand elastic a 1% price cut increases quantity sold by more than

Answer 22

1% and total revenue increase

Question 23

If demand inelastic =1% price cut increases quantity sold by less than

Answer 23

1% and total revenue decreases

Question 24

If demand =unit elastic→ 1% price cut increases quantity sold by 1% and total revenue unchanged

Answer 24

true

Question 25

Total revenue test

Answer 25

way of findng price elasticity of demand by looking at change in total revenue

Question 26

If price cut increases total revenue→ demand is elastic

Answer 26

true

Question 27

If price cut decrease total revenue→ demand is

Answer 27

inelastic

Question 28

If price cut leaves total rebein unchanged

Answer 28

demand is unit elastic

Question 29

If quantity supplied by producers = responsive to price changes → supply is

Answer 29

elastic

Question 30

If supply curve= vertical
Elasticity of supply?

Answer 30

0

Question 31

f supply curve = passes through origin

Answer 31

supply curve = unit elastic

Question 32

perfelcty elastc supply when

Answer 32

supply curve line is hornxalt (slope =0)

Question 33

Factors that influence the elasticity of supply

Answer 33

Resource substitution possibilities
Time frame for supply decision

Question 34

cross elasticity

Answer 34

how much the demand for one product changes when the price of another related product changes, assuming everything else stays the same.

Question 35

Cross elasticity of demand for a substitue and complement is?

Answer 35

A substitute= positive
A complement= negative

Question 36

Income elasticity of demand

Answer 36

measures how demand for a good changes in response to changes in income, while keeping everything else constant

to calc = percent in quantity demanded/perctn change in income

Question 37

Income elasticity of demand >1

Answer 37

demand= income elastic
good= normal good

Question 38

Income elasticity of demand > 0 but <1

Answer 38

Demand = income inelastic
good= normal good