Chapter 6: Elasticity: The Responsiveness of Demand and Supply

Question 1

elasticity

Answer 1

a measure of how much one economic variable responds to changes in another economic variable

Question 2

price elasticity of demand

Answer 2

the responsiveness of the quantity demanded to a change in price, measure by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price

Question 3

elastic demand

Answer 3

demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value

Question 4

inelastic demand

Answer 4

demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value

Question 5

unit-elastic demand

Answer 5

demand is unit elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value

Question 6

perfectly inelastic demand

Answer 6

the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero

Question 7

perfectly elastic demand

Answer 7

the case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity

Question 8

total revenue

Answer 8

the total amount of funds received by a seller of a good or service, calculated by multiplying price per unit by the number of units sold

Question 9

cross-price elasticity of demand

Answer 9

the percentage change in quantity demanded of one good divided by the percentage change in the price of another good

Question 10

income elasticity of demand

Answer 10

a measure of the responsiveness of quantity demanded to changes in income, measured by the percentage change in quantity demanded divided by the percentage change in income

Question 11

price elasticity of supply

Answer 11

the responsiveness of the quantity supplied to a change in price, measure by dividing the percentage change in the quantity supplied of a product by the percentage change in the product’s price