Chapter 6: Elasticity

Question 1

Define elasticity

Answer 1

A measure of the sensitivity of one variable to changes in another variable

Question 2

Define price elasticity of demand (PED)

Answer 2

A measure of the sensitivity of the quantity demanded to a change in the price of a good or service

Question 3

What’s the formula for PED

Answer 3

% change in quantity demanded / % change in price

Question 4

Define elastic

Answer 4

A term used when the price elasticity of demand is greater than 1 but less than infinity

Question 5

Define inelastic

Answer 5

A term used when the price elasticity of demand is less than 1 but greater than 0

Question 6

Define unit elastic

Answer 6

A term used when the price elasticity of demand is equal to 1

Question 7

Define income elasticity of demand (YED)

Answer 7

A measure of the sensitivity of quantity demanded to a change in the consumer incomes

Question 8

Define superior good

Answer 8

One for which the income elasticity of demand is positive, and greater than 1, such that as income rises, consumers spend proportionally more on the good

Question 9

Define cross elasticity of demand (XED)

Answer 9

A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service

Question 10

Define price elasticity of supply (PES)

Answer 10

A measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service

Question 11

Define perfectly inelastic supply

Answer 11

A situation in which firms can supply only a fixed quantity, so cannot increase or decrease the amount available: elasticity of supply is zero

Question 12

Define perfectly elastic supply

Answer 12

A situation in which firms will supply any quantity of a good at the going price: elasticity of supply is infinite