Chapter 4: Elasticity

Question 1

a good is elastic if

Answer 1

consumer demand is very responsive to a price change

Question 2

a good is inelastic if

Answer 2

consumer demand is very unresponsive to a price change

Question 3

elasticities are based on

Answer 3

percentage changes in both variables (price and demand)

Question 4

how to find percent change

Answer 4

1) take the difference of a value over a given time period
2) divide out by the original amount
3) multiply by 100
ex: % change in a price from january to february
(price of feb - price of jan / price of jan) x 100

(p2-p1)/p1)x100

Question 5

price of elasticity demand (PED)

Answer 5

a measure of the responsiveness of quantity demanded to a change in price

Question 6

formula for PED

Answer 6

% change in Q / % change in P (*note that x100 will cancel and you are left with the following)
(Q2-Q1/Q1)/(P2-P1/P1)

Question 7

demand is elastic if

Answer 7

its price elasticity of demand is greater (in
absolute value) than 1

Question 8

demand is inelastic if

Answer 8

its price elasticity of demand is less (in absolute value) than 1

Question 9

perfectly elastic demand:

Answer 9

quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity (horizontal demand curve)

Question 10

perfectly inelastic demand:

Answer 10

Quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero (vertical demand curve)

Question 11

determinants of the price elasticity of demand

Answer 11

1. availability of close substitutes
2. the passage of time: people are able to adjust their purchasing behavior over time