chapter 5

Question 1

elasticity

Answer 1

measure of how much buyers and sellers respond to changes in market conditions, percentage change in quantity or supply divided by percent change of something else

Question 2

determinants of price elasticity of demand

Answer 2

availability of close substitutes, necessities versus luxuries, definition of the market, time horizon

Question 3

availability of close substitutes

Answer 3

goods with close substitutes tend to have more elastic demand

Question 4

necessities versus luxuries

Answer 4

necessities have inelastic demand, luxuries have elastic demand

Question 5

definition of the market

Answer 5

narrowly defined: tend to have more elastic than broadly defined
broadly defined: has no close subsitutes

Question 6

time horizon

Answer 6

demands tend to be more elastic over a longer period of time

Question 7

variety of demand curves

Answer 7

strong elastic: >1 (infinity = perfect elastic)
proportionate unit: =1
weak inelastic: <1, (perfectly inelastic = 0)

Question 8

total revenue

Answer 8

amount paid by buyers, amount received by sellers
TR = PxQ (price by quantity)

Question 9

TR: inelastic demand

Answer 9

price and total revenue move in same direction

Question 10

TR: elastic demand

Answer 10

price and total revenue move in opposite directions

Question 11

TR: unit elastic

Answer 11

total revenue remains constant with price changes

Question 12

Income Elasticity of Demand

Answer 12

how much quantity of demanded good responds to change in consumers income
%changeQ/%changeIn

Question 13

demand change and income elasticity

Answer 13

demand increases: good is normal
demand decreases: good is inferior

Question 14

normal goods

Answer 14

positive income elasticity

Question 15

inferior goods

Answer 15

negative income elasticity

Question 16

Cross-Price Elasticity of Demand

Answer 16

how much quantity demanded of one good responds to a change in price of another good
perfect change 1 / percent change 2

Question 17

cross price elasticity: substitutes and complements

Answer 17

substitutes: positive cross-price elasticity
complements: negative cross-price elasticity

Question 18

variety of supply curves

Answer 18

perfectly inelastic: 0, vertical
inelastic: <1
Unit Elastic = 1
Elastic: >1
Perfectly Elastic: infinity, horizontal curve

Question 19

Time and Elasticity of Supply

Answer 19

as time increases, a price is expected to become more elastic