Chapter 4

Question 1

elasticity

Answer 1

a measure of the responsiveness of an economic actor to changes in market factors, including price and income

Question 2

price elasticity of demand

Answer 2

the responsiveness of the quantity demanded to a change in price

Question 3

price-inelastic demand

Answer 3

a relationship between price and quantity demanded characterized by relatively weak responses of buyers to price changes

Question 4

price-elastic demand

Answer 4

a relationship between price and quantity demanded characterized by relatively strong responses of buyers to price changes

Question 5

price-inelastic demand (technical definition)

Answer 5

the percentage change in the quantity demanded is smaller than the percentage change in price. The elasticity value is less than 1 in absolute value

Question 6

price-elastic demand (technical definition)

Answer 6

the percentage change in the quantity demanded is larger than the percentage change in price. The elasticity value is more than 1 in absolute value

Question 7

perfectly inelastic demand

Answer 7

the quantity demanded does not change at all when price changes. The elasticity value is 0

Question 8

perfectly elastic demand

Answer 8

any change in price leads to an infinite change in quantity demanded. The elasticity value is infinity

Question 9

unit-elastic demand

Answer 9

the percentage change in the quantity demanded is exactly equal to the percentage change in price. The elasticity value is −1

Question 10

price elasticity of supply

Answer 10

a measure of the responsiveness of quantity supplied to changes in price

Question 11

income elasticity of demand

Answer 11

a measure of the responsiveness of demand to changes in income, holding price constant

Question 12

normal goods

Answer 12

goods for which demand increases when incomes rise and decreases when incomes fall

Question 13

inferior goods

Answer 13

goods for which demand decreases when incomes rise and increases when incomes fall

Question 14

substitution effect of a price change

Answer 14

the tendency of a price increase for a particular good to reduce the quantity demanded of that good, as buyers turn to relatively cheaper substitutes

Question 15

income effect of a price change

Answer 15

the tendency of a price increase to reduce the quantity demanded of normal goods (and to increase the quantity demanded of any inferior goods)

Question 16

short-run elasticity

Answer 16

a measure of the relatively immediate responsiveness to a price change

Question 17

long-run elasticity

Answer 17

a measure of the response to a price change after economic actors have had time to make adjustments