chapter5 notes

Question 1

what is elasticity

Answer 1

measures the responsiveness of buyers and sellers to changes in economic variables such as prices and income.

Question 2

The concept of elasticity allows us to make what type of observations about the impact of changes in supply and demand on equilibrium prices and quantities

Answer 2

quantitative observations

Question 3

The law of demand tells us

Answer 3

hat as the price of a commodity falls, more of a product will be bought

Question 4

If consumers are very responsive to a price change, their demand for that product is said to be

Answer 4

“elastic”

Question 5

if consumers are only slightly responsive to price changes, that demand is described as

Answer 5

inelastic.

Question 6

according to the law of demand, there is a ____________ relationship between price and quantity demanded.

Answer 6

negative

Question 7

a market demand curve slopes

——

Answer 7

downward

Question 8

moving down the demand curve two things happen simultaneously. they are

and what happens to total revenue

Answer 8

1. price per unit falls (tends to make total revenue smaller)
2. quantity sold increases(tends to increase total revenue)

what happens to total revenue depends on which one of theses is stronger

Question 9

if the increase in quantity is large enough to offset the decrease in price, what happens to total revenue?

Answer 9

total revenue will rise or increase

Question 10

if the effect of the price decrease is stronger than the effect of the larger quantity sold, what happens to total revenue?

Answer 10

total revenue will fall

Question 11

what is elasticity of demand help us to determine

Answer 11

the effect of a price change on total revenue

Question 12

the elasticity measure compares what

Answer 12

the percent change in quantity to the percent change in price

percent change in quantity /percent change in price

Question 13

if the percent change in quantity is larger than the percent change in price then the elasticity value is ___________. and what happens to total revenue

Answer 13

greater than 1

a reduction in price will cause total revenue to increase

Question 14

if the percent change in quantity is smaller than the percent change in price then the elasticity value is ___________. and what happens to total revenue

Answer 14

less than 1

a reduction in price will cause total revenue to decrease

Question 15

say the price decreases from $30 to $25 dollars and the quantity increases from 20,000 to 25,000
what is the elasticity of demand?

Answer 15

(30 + 25)/2 = 27.5

5/27.5 = 18.2 %

(20000+25000)/2= 22,5000

5000/22500 =22.2%

22.2%/18.2% = 1.22%