Chapter 5 (elasticity)

Question 1

elasticity

Answer 1

a measure of responsiveness

Question 2

price elasticity of demand

Answer 2

how steep/flat a demand curve is; how much quantity demanded changes when the price changes(how sensitive demand is to a change in price)

Question 3

price elasticity of supply

Answer 3

how steep/flat the supply curve is; how much quantity supplied changes when the price changes(how sensitive supply is to a change in price)(ability of sellers to change he amount of good they produce)

Question 4

income elasticity of demand

Answer 4

how does quantity demanded change when income changes

Question 5

cross-price elasticity of demand

Answer 5

how does quantity demanded change when the price of related goods changes

Question 6

how does and inelastic curve look

Answer 6

very steep. (more verticle)

Question 7

how does an elastic curve look

Answer 7

very flat (more horizontal)

Question 8

determinants of price elasticity of demand (4)

Answer 8

• availability of close substitutes
• necessity vs. luxury (how bad do u need it)
• definition of the market (meat vs. hamburgers)
• time horizon (elasticity is different in short-run vs. long-run)

Question 9

total revenue

Answer 9

the value of what is sold (QP)(quantityprice)

Question 10

elastic price elasticity of demand is ___1

Answer 10

• greater than

- this means that quantity is changing more than price. total revenue decreases as prices rise

Question 11

inelastic price elasticity of demand is___1

Answer 11

• less than

- this means that quantity is changing less than price. total revenue increases as prices rise

Question 12

unity elastic price elasticity of demand is____1

Answer 12

• equal to

- this means that quantity changes exactly the same percent as price. total revenue does not change as price rises

Question 13

if cross price elasticity of demand is < 0 then the two goods are ___

Answer 13

compliments

Question 14

if cross price elasticity of demand is > 0, then the two goods are____

Answer 14

subsitutes

Question 15

if income elasticity of demand is > 0, then goods are___

Answer 15

normal

Question 16

if income elasticity of demand is < 0, then goods are

Answer 16

inferior

Question 17

good in which the supply can be easily changed are more inelastic or elastic?

Answer 17

elastic

Question 18

goods in which it changing the supply is less flexible are more inelastic or elastic

Answer 18

inelastic

Question 19

is supply more elastic in the short run or long run?

Answer 19

long run

Question 20

is demand more elastic in the short run or long run?

Answer 20

• long run

- at first price doesn’t make huge difference, over time people find better substitutes

Question 21

as a good is more narrowly defined is it more elastic or inelastic.

Answer 21

• more elastic

- more defined it is, the more substitutes available.