Determinants of Elasticity, Cross Elasticity and Income Elasticity

Question 1

the availability of substitutes, the more elastic is the product’s demand

Answer 1

substitutability

Question 2

the closer the substitutes

Answer 2

the more elastic is the demand

Question 3

proportion of income

Answer 3

larger the expenditure relative to an individual’s budget, the more elastic the demand because the buyers notice the change in price more

Question 4

demand for low-priced goods is

Answer 4

relatively inelastic

Question 5

demand for high-priced goods is

Answer 5

relatively elastic

Question 6

less necessary the item

Answer 6

the more elastic is the demand

Question 7

cross elasticity of demand

Answer 7

is a measure of the responsiveness of demand for a good to a change in the price of a substitute or a complement, other things remaining the same

Question 8

substitute goods

Answer 8

goods that can replace each other

Question 9

complementary goods

Answer 9

goods frequently consumed in combination

Question 10

income increases

Answer 10

more money to spend, demand for goods will shift rightward

Question 11

income elasticity of demand

Answer 11

measures degree to which consumer respond to a change in their income by buying more or less of a particular good

Question 12

normal good

Answer 12

demand for more of a good when you make more money

Question 13

inferior good

Answer 13

demand for less of a good when income increases

Question 14

law of supply

Answer 14

an increase in price causes an increase in quantity supplied

Question 15

short run

Answer 15

fixed capacity for producers

Question 16

long run

Answer 16

firms can make resource adjustments necessary—more firms can enter or leave market

Question 17

utility

Answer 17

amount of satisfaction or benefit a person receives from the consumption of a good or service

Question 18

utility theory

Answer 18

the more pleasure we get from a product, the higher the price we’re willing to pay for it

Question 19

total utility or benefit

Answer 19

satisfaction received from the consumption of a series of products

Question 20

marginal utility

Answer 20

extra satisfaction derived from 1 additional unit of a specific product

Question 21

marginal utility theory

Answer 21

assumes people chooses the consumption possibility that maximizes their total utility

Question 22

law of diminishing marginal utility

Answer 22

successive units of a product yield smaller and smaller amounts of marginal utility so the consumer will buy more only if P falls

Question 23

goal of consumer

Answer 23

maximize total utility

Question 24

consumer equilibrium

Answer 24

no incentive exits to alter expenditure pattern unless tastes, income or prices change

Question 25

Thorstein Veblen

Answer 25

spending of money for and the acquiring of the luxury goods and service to publicly display economic power, either the buyer’s income or the buyer’s accumulated wealth

Question 26

consumer surplus

Answer 26

a person high up on the demand curve is willing to pay a lot for a good

Question 27

market price

Answer 27

what each will actually pay (or not pay)

Question 28

price discrimination

Answer 28

the sale of an individual good at different prices to different consumers

Question 29

indifference curve

Answer 29

a curve depicting alternative combinations of goods that yield equal satisfaction

Question 30

indifference curve

Answer 30

deals with all combinations of goods