Chapter 5 Elasticity

Question 1

total revenue peaks

Answer 1

at unit elastic

Question 2

lower price effect on revenue in elasticity

Answer 2

* if inelastic total revenue falls
* if unit elastic total revenue remains constant
* if elastic total revenue rises

Question 3

higher price effect on revenue in elasticity

Answer 3

* if inelastic revenue rises
* if unit elastic revenue is constant
* if elastic total revenue falls

Question 4

elasticity measures

Answer 4

the willingness and ability of buyers and sellers to alter their behavior in response to change in their economic circumstances

Question 5

zero cross-price elasticity of demand

Answer 5

goods are unrelated

Question 6

negative cross-price elasticty of demand

Answer 6

goods are complments

Question 7

positive cross-price elasticty of demand

Answer 7

goods are substitutes

Question 8

income elastic luxuries

Answer 8

normal goods with income elasticty greater then 1

Question 9

cross price elasticity of demand

Answer 9

percentage change in demand for one good divided by the percentage change in demand of another good

Question 10

income inelastic

Answer 10

normal goods with elasticities less than 1

Question 11

normal goods

Answer 11

• goods where the demand shifts right as income increases
• elasticity is greater than 0

Question 12

inferior goods

Answer 12

• goods where the demand shifts left as income increases
• elasticity is negative

Question 13

income elasticity of demand

Answer 13

• measures how responsive demand is to a change in consumer income
• the percentage change in demand divided by the percentage change in income that caused it

Question 14

two determinats of supply elasticity

Answer 14

1. length of adjustment period
2. cost change as output increases

Question 15

unit-elastic supply curve

Answer 15

• straight line
• any price increase causes an identical change in quanity supplied

Question 16

elastic supply

Answer 16

• change in price has a large effect on the quanity supplied
• percentage change in quanity supplied exceeds the percentage change in price
• price elasticity exceeds 1

Question 17

unit-elastic supply

Answer 17

• percentage change in quanity supplied equals the percentage change in price
• pelasticity is equal to 1

Question 18

inelastic supply

Answer 18

• change in price has little effect on quanity supplied
• percentage change in quanity supplied is less than the percentage change in price
• price elasticity is less than 1

Question 19

price elasticity of supply formula

Answer 19

• the percentage change in quanity supplied over the percentage change in price
• (change in q/average of q) / (change in p / average of p)

q is always over p

Question 20

price elascity of supply

Answer 20

• measures the responsiveness of quanity supplied to a price change
• the percentage change in quanity supplied divided by the percentage change in price

Question 21

lower prices

Answer 21

discourage production and encourage consumption

Question 22

higher prices

Answer 22

discourages consumption and encouragesproduction