Chapter 5

Question 1

Elasticity

Answer 1

a measure of the responsiveness of
quantity demanded or quantity supplied to
a change in one of its determinants

Question 2

Price elasticity of demand

Answer 2

a measure of how much the quantity demanded of a good responds to a
change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage
change in price

Question 3

Factors that effect elasticity

Answer 3

Availability of close substitutes
Necessity vs Luxury
Definition of the Market (narrow or wide)
Time horizon (more elastic over long term)

Question 4

Midpoint formula

Answer 4

(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]

Question 5

Total revenue

Answer 5

the amount paid by buyers and received
by sellers of a good, computed as the price
of the good times the quantity sold
Area under the graph of price demand curve

Question 6

Income elasticity of demand

Answer 6

a measure of how much the quantity demanded of a good responds to a
change in consumers’ income, computed as
the percentage change in quantity demanded divided by the percentage
change in income

Question 7

Cross-price elasticity of demand

Answer 7

a measure of how much the quantity demanded of one good responds to
a change in the price of another good, computed as the percentage change
in quantity demanded of the first good divided by the percentage change in
price of the second good

Question 8

Elasticity is always negative so

Answer 8

We take absolute value

Question 9

|E|>1
|E|<1
|E|=1

Answer 9

Elastic
Inelastic
Unit elastic

Question 10

Price elasticity of supply

Answer 10

a measure of how much the quantity supplied of a good responds to a
change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change
in price