Chapter 4 - Elasticity

Question 1

Price elasticity of demand

Answer 1

• when quantity demanded is quite responsive to changes in price demand is elastic
• when quantity demanded is relatively unresponsive to changes in price demand is said to be inelastic

Question 2

What determines elasticity of demand

Answer 2

• availability of substitutes
• importance in consumers budgets
• time period (a demand that is inelastic in the short run may prove to be elastic in the long run as the factor market adjusts)

Question 3

What determines elasticity of demand

Answer 3

• ease of substitution
• short run & long run