Chapter 5

Question 1

What is price elasticity of demand?

Answer 1

The measure of how much quantity demanded responds to a change in price

Question 2

What is inelastic demand?

Answer 2

A small response in quantity demanded when price rises

Question 3

What is elastic demand?

Answer 3

A large response in quantity demanded when price rises

Question 4

What is elasticity equal to?

Answer 4

The percentage change in quantity demanded divided by the percentage change in price

Question 5

What does unit elastic mean?

Answer 5

The value of elasticity is equal to 1

Question 6

When is demand perfectly inelastic?

Answer 6

When the quantity demanded doesn’t respond to a change in price, so elasticity equals 0

Question 7

When is demand perfectly elastic?

Answer 7

When the quantity demanded has an infinite response to a change in price, so elasticity is infinite

Question 8

What factors influence elasticity?

Answer 8

1. Available substitutes
2. Time to adjust
3. Proportion of income spent on a product

Question 9

What is total revenue? What is it equal to?

Answer 9

All the money a business receives from sales. Equal to price per unit multiplied by quantity sold

Question 10

What is elasticity of supply?

Answer 10

The measure of how much quantity supplied responds to a change in price

Question 11

What is inelastic supply?

Answer 11

A small response in quantity supplied when price rises

Question 12

What is elastic supply?

Answer 12

A large response in quantity supplied when price rises

Question 13

When is supply perfectly inelastic?

Answer 13

When the quantity supplied doesn’t respond to a change in price, so elasticity of supply equals 0

Question 14

When is supply perfectly elastic?

Answer 14

When the quantity supplied has an infinite response to a change in price, so elasticity of supply is infinite

Question 15

How does availability of inputs effect supply?

Answer 15

The more available a new input is the greater the elastic supply.
The less available a new input is the greater the inelastic supply

Question 16

What is cross elasticity of demand?

Answer 16

A measure of the response of the demand for a product to a change in the price of a sub or comp

Question 17

What is cross elasticity of demand equal to?

Answer 17

The percentage change in quantity demanded divided by the percentage change in price of a sub or comp

Question 18

What does the sign of cross elasticity of demand mean?

Answer 18

It is positive for a substitute and negative for a complement

Question 19

What is income elasticity if demand?

Answer 19

The measure of responsiveness of demand of a product or service due to a change in income

Question 20

When is income elasticity of demand inelastic?

Answer 20

For normal goods that are necessities. The income elasticity of demand will be less than 1

Question 21

When is income elasticity of demand elastic?

Answer 21

For normal goods that are luxuries. The income elasticity of demand will be greater than 1

Question 22

What is a tax incident?

Answer 22

The division of a tax between buyers and sellers

Question 23

How do tax incidents relate to price elasticity of demand?

Answer 23

The more inelastic the demand is, the more the buyers will pay. The more elastic the demand is, the more sellers pay

Question 24

How do tax incidents relate to price elasticity of supply?

Answer 24

The more inelastic the supply is, the more sellers pay. The more elastic the supply is, the more buyers pay