Chapter Five: Elasticity and its Application

Question 1

Elasticity

Answer 1

A measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

Question 2

Price Elasticity of Demand

Answer 2

A measure of how much the quantity demanded of a good responds to the change in price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

Question 3

Total Revenue (In a Market)

Answer 3

The amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

Question 4

Income Elasticity of Demand

Answer 4

A measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income

Question 5

Cross-Price Elasticity of Demand

Answer 5

A measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

Question 6

Price Elasticity of Supply

Answer 6

A measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price