chapter 5 elasticity

Question 1

elasticity

Answer 1

measure of how much buyers and sellers respond to changes in market conditions

Question 2

elasticity

Answer 2

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

Question 3

price elasticity of demand

Answer 3

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 4

demand for a good is said to be elastic when

Answer 4

the quantity demanded responds substantially to changes in price. elasticity is greater than one

Question 5

demand for a good is said to be inelastic when

Answer 5

the quantity demanded responds only slightly to changes in price. elasticity is less than one

Question 6

what determmines price elasticity of demand

Answer 6

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

Question 7

availability of close subtitutes

Answer 7

goods with close subtitutes tend to have elastic demand. goods without close substitutes tend to have inelastic demand

Question 8

necessities vs. luxuries

Answer 8

necessities tend to have inelastic demands while luxuries tend to have elastic demand

Question 9

definition of the market

Answer 9

narrowly defined markets tend to have elastic demand. broadly defined markets tend to have inelastic demand

Question 10

time horizon

Answer 10

goods tend to have elastic demand over long time horizons and inelastic demand during short time horizons.

Question 11

total revenue

Answer 11

the amount paid by buyers and received by sellers of
a good, computed as the price of the good times
the quantity sold

Question 12

income elasticity of demand

Answer 12

measures how the quantity demanded changes as consumer income changes (percentage change in quantity demanded/percentage change in income)

Question 13

cross price elasticity of demand

Answer 13

measures how the quantity demanded of one good responds to a change in price of another good (percent change in quantity demanded of good one/ percentage change in price of good 2)

Question 14

price elasticity of supply

Answer 14

measures how much quantity supplied responds to changes in price (percentage change in quantity supplied/ percentage change in price)