Chapter 5

Question 1

An increase in price reduces quantity demanded and increases in quantity supplied in a market

Answer 1

True

Question 2

Elasticity of Demand

Answer 2

Measures the responde of demand to changes in its determinants.

Question 3

Price of Demand

Answer 3

Measures how the quantity demanded responds to a change in the price of that good.

% change in quantity demanded / % change in price

Question 4

Elastic Demand

Answer 4

If the quantity demanded changes a lot.

Question 5

Inelastic Demand

Answer 5

If the quantity demanded changes a little.

Question 6

Factors in Elasticity of Demand

Answer 6

-Availability of close substitutes
-Necessities and luxuries
-Defining the market broadly
-Time Horizon

Question 7

If there are more substitutes the demand will be _______________

Answer 7

More elastic

Question 8

The longer the time period the ____________

Answer 8

More elastic

Question 9

Perfectly inelastic is __________

Answer 9

Vertical

Question 10

The flatter, the ________________ elastic is the curve.

Answer 10

More elastic

Question 11

Changes in revenue because of elasticity

Answer 11

-Less than 1, increase in price increases revenue
-More than 1, increase in price decreases revenue
-Equal to 1, change in price has no impact

Question 12

When price is high and quantity low, price elasticity is _________

Answer 12

Large

Question 13

When price is low and quantity high, price elasticity is ______

Answer 13

Small

Question 14

Price Elasticity of Demand Formula

Answer 14

Q/P

Question 15

Income Elasticity of Demand

Answer 15

Measures how much the Q demanded responds to a change in consumer’s income

Question 16

For normal goods, elasticity is ________

Answer 16

Positive

Question 17

For inferior goods, elasticity is ________

Answer 17

Negative

Question 18

Cross Price elasticity of demand

Answer 18

Measures one good to a change in price of a another good.

Question 19

Cross Price Elasticity of Demand Formula

Answer 19

% Change in Q of good 1 / % Change in P of good 2

Question 20

For substitutes elasticity is ________

Answer 20

Positive

Question 21

For complements, elasticity is ______

Answer 21

Negative

Question 22

Elasticity of Supply

Answer 22

Measures how much the quantity supplied responds to a change in the price of that good, calculated as the percentage change in Q.

Question 23

High price, low quantities, elasticity is large

Answer 23

Low price, high quantities, elasticity is small

Question 24

Applications of Supply and Demand Elasticity

Answer 24

-Market for Agricultural Products
-Market for oil
-Market for ilegal drugs