Chapters 4 and 5: Equilibrium and Elasticity

Question 1

Equilibrium

Answer 1

a state of a market where there is no tendency for change in supply or demand; there will always be sufficient buyers and sellers

Question 2

Demand Shifters in Equilibrium

Answer 2

when demand INCREASES: equilibrium price and quantity demanded rises.
when demand DECREASES: equilibrium price and quantity demanded falls.

Question 3

Supply Shifters in Equilibrium

Answer 3

when supply INCREASES: equilibrium price increases, quantity falls.
when supply DECREASES: equilibrium price decreases, quantity rises.

Question 4

Shortage

Answer 4

quantity demanded is greater than quantity supplied; prices rise

Question 5

Surplus

Answer 5

quantity supplied is greater than quantity demanded; prices fall

Question 6

Price Elasticity of Demand

Answer 6

a measure of how responsive buyers are to price changes; elastic = greater than 1, inelastic = smaller than 1

Question 7

Determinants of Elasticity of Demand

Answer 7

all about sustainability; INCREASE (competition, brands, consumer search, demand) or DECREASE (necessities)

Question 8

Calculating the Price Elasticity of Demand

Answer 8

use the midpoint formula!
= x2 - x1 / ( (x1 + x2) / 2 ) x 100

Question 9

Total Revenue

Answer 9

the total amount of buyers calculated PRICE x QUANTITY

Question 10

Cross-Price Elasticity of Demand

Answer 10

all about how responsive good A is to a price change of good B; calculated as (% change in quantity demanded / % change in price another good); compliments have a negative CPE, substitutes have a positive CPE

Question 11

Income Elasticity of Demand

Answer 11

(% change in demand / % change in price); inferior goods have a negative CPE, normal goods have a positive GPE

Question 12

Elastic Demand Curve

Answer 12

the flatter the curve, the more elastic

Question 13

Inelastic Demand Curve

Answer 13

the steeper the curve, the less elastic