Chapter 5 Vocab - Elasticity and Its Applications

Question 1

Define: Elasticity of demand

Answer 1

Measures how responsive the quantity demanded is to a change in price; more responsive equals more elastic.

Question 2

The more and the better substitutes for a good, the more ___________ the demand.

Answer 2

elastic

Question 3

List the factors of goods whose demand is less elastic

Answer 3

• Fewer substitutes
• Short run (less time)
• Categories of product
• Necessities
• Small part of budget

Question 4

List the factors of goods whose demand is more elastic

Answer 4

• More substitutes
• Long run (more time)
• Specific brands
• Luxuries
• Large part of budget

Question 5

How to calculate elasticity of demand

Answer 5

Percentage change in the quantity demanded divided by the percentage change in price

Question 6

Formula for elasticity of demand

Answer 6

Question 7

When I Ed I > 1 the demand is ___________

Answer 7

Elastic

Question 8

When I Ed I = 1 the demand is ___________

Answer 8

Unit elastic

Question 9

When I Ed I < 1 the demand is ___________

Answer 9

Inelastic

Question 10

Define: Total revenue

Answer 10

Price per unit times quantity sold
(TR = P * Q)

Question 11

If the demand curve is inelastic, price and revenue move ___________

Answer 11

together

Question 12

If the demand curve is elastic, price and revenue move ___________

Answer 12

in opposite directions

Question 13

If the demand curve is unit elastic, when price changes, revenue ___________

Answer 13

stays the same

Question 14

Define: Elasticity of supply

Answer 14

Measures how responsive the quantity supplied is to a change in price

Question 15

The supply of raw materials is often ___________

Answer 15

inelastic

Question 16

Local supply of a good is much more ___________ than global supply of a good.

Answer 16

elastic

Question 17

List the factors of goods whose supply is less elastic

Answer 17

• Difficult to increase production at constant unit cost (ex: some raw materials)
• Large share of market for inputs
• Global supply
• Short run

Question 18

List the factors of goods whose supply is more elastic

Answer 18

• Easy to increase production at constant unit cost (ex: some manufactured goods)
• Small share of market for inputs
• Local supply
• Long run

Question 19

How to calculate elasticity of supply

Answer 19

Percentage change in the quantity supplied divided by the percentage change in price

Question 20

Formula for elasticity of supply

Answer 20

(demand formula but DON'T TAKE THE ABSOLUTE VALUE)