Chapter 6 Key Terms

Question 1

(Price) elasticity of demand

Answer 1

the ratio of the percentage change in quantity demanded to the percentage change in price that brings about the change in quantity demanded

Question 2

Unit-elastic demand curve

Answer 2

when a given percentage price change leads to the same percentage change in quantity demanded

Question 3

income elasticity of demand

Answer 3

the ratio of the percentage change in quantity demanded to the percentage change in income

Question 4

Complements

Answer 4

characteristic of a pair of goods if an increase in the quantity consumed of one increases the quantity demanded of the other, all other things remaining constant

Question 5

Substitutes

Answer 5

characteristic of a pair of goods if an increase in the quantity consumed of one cuts the quantity demanded of the other, all other things remaining constant

Question 6

Cross elasticity of demand

Answer 6

(for product X to a change in the price of another product Y) the ratio of the percentage change in quantity demanded of X to the percentage change in the price of Y that brings about the change in quantity demanded

Question 7

Optimal decision

Answer 7

a decision that best serves the objectives of the decision maker, whatever those objectives may be (connotes neither approval or disapproval of the objective itself; selected by explicit or implicit comparison with the possible alternative choices

Question 8

Elastic demand curve

Answer 8

when a given percentage price change leads to a larger percentage change in quantity demanded

Question 9

Inelastic demand curve

Answer 9

when a given percentage price change leads to a smaller percentage change in quantity demanded