Chapter 5

Question 1

What is elasticity of demand refer to?

Answer 1

This is the measure of how responsive the quantity demanded is to a change in price.

Question 2

In reference to the elasticity of demand the more responsive the item/good ……?

Answer 2

The more elastic the good is.

Question 3

What is the equation for calculating the elasticity of demand?

Answer 3

% Change in quantity demanded / % change in the price

only using absolute value

Question 4

What is the formula for calculating the % change?

Answer 4

New - Old / Old.

Question 5

An elasticity demanded of 4 would indicate what?

Answer 5

for every 1% change in price the quantity demanded shifts 4 % in the opposite direction.
( BUYERS DREAM)

Question 6

what does an elasticity demanded of .4 mean?

Answer 6

This means for every 1% change in price, the quantity demanded shifts .4% in the opposite direction.
( SELLERS DREAM)

Question 7

What does the elasticity rule indicate?

Answer 7

The flatter the line the more elastic the good. (so long as both lines are linear and run through a common point.)

Question 8

an E(d) of 0 indicates what?

Answer 8

The good is perfectly inelastic, meaning there is a zero percent change in quantity demanded for any price. This is a perfectly straight and vertical line

Question 9

The easier it is to find substitutes the …….. the elasticity?

Answer 9

The greater the elasticity

Question 10

An E(d) of OO (infinity) means what?

Answer 10

The good is perfectly elastic- there are tons of substitutes.

Question 11

What is the equation to calculate total revenue?

Answer 11

TR= P x Q (price) (quantity)

Question 12

How does time effect elasticity?

Answer 12

The more time -> the more substitutes -> the greater the elasticity.

Question 13

Are luxuries typically elastic or inelastic?

Answer 13

Luxuries are elastic goods.

Question 14

Things that are less elastic typically…?

Answer 14

• Have fewer substitutes.
• Short run (less time)
• Categories of product
• Necessities
• Small part of Budget

Question 15

Things that are more elastic typically…?

Answer 15

• more substitutes
• long run (more time)
• Specific brands
• Luxuries
• Large part of the budget

Question 16

an E(d) of 1 indicates the good is …?

Answer 16

Unit elastic

Question 17

What does elasticity measure?

Answer 17

How Much Q goes down when P goes up.

Question 18

What is elasticity of supply?

Answer 18

Measures how responsive the quantity supplied is to a change in price.

Question 19

Is local or global supply more elastic?

Answer 19

Local supply is much more elastic

Question 20

The supply of a Picasso painting is (Blank) and on a graph would be represented by (Blank)?

Answer 20

inelastic af, Picasso cannot paint anther painting, for he is dead and it would be represented by a straight vertical line.

Question 21

The supply of toothpicks is (Blank) and on a graph would be represented by (Blank)?

Answer 21

The supply of toothpicks is perfectly elastic, and is represented by a straight horizontal line on the graph.

Question 22

less elastic supply environments:

Answer 22

• Difficult to increase production at constant unit costs.
• Large share of market for inputs
• Global supply
• Short run

Question 23

more elastic supply environments:

Answer 23

• easy to increase production at constant unit costs.
• small share of market for inputs.
• local supply
• long run.

Question 24

What is the formula to calculate elastic supply?

Answer 24

Es = % change in Q(s) / % change in price.

Question 25

What is cross elasticity referring to?

Answer 25

comparing two goods.

Question 26

Et > 0 = ?
Et < 0 = ?
Et = 0 = ?

Answer 26

1. ) Normal good
2. ) Inferior good
3. ) Necessity.