Econ 101: Chapter 5

Question 1

Price elasticity of demand is…

Answer 1

negative.

Question 1

Price elasticity of demand

Answer 1

measures how responsive buyers are to price changes.

Measures the percent change in quantity demanded that follows from a 1% price change.

Question 2

elastic

Answer 2

when the absolute value of the % change in quantity is larger than the absolute value of the % change in price.

> 1.

Question 3

inelastic

Answer 3

when the absolute value of the % change in quantity is smaller than the absolute value of the % change in price.

<1.

Question 4

When buyers are very responsive to price…

Answer 4

their demand is elastic.

Question 5

When buyers are not very responsive to price…

Answer 5

their demand is inelastic.

Question 6

unit elastic

Answer 6

When the absolute value of the price elasticity is exactly equal to 1.

neither elastic nor inelastic.

Question 7

Elastic demand curves are…

Answer 7

relatively flat.

Question 8

Inelastic demand curves are…

Answer 8

relatively steep.

Question 9

Elasticity is not the same as…

Answer 9

slope.

Question 10

perfectly elastic

Answer 10

when any change in price leads to an infinitely large change in quantity.

horizontal curve.

Question 11

perfectly inelastic

Answer 11

when quantity does not respond at all to a price change.

vertical curve.

Question 12

Demand elasticity is all about…

Answer 12

substitutability.

Question 13

Demand elasticity factor 1:

Answer 13

more competing products = greater elasticity.

Question 14

Demand elasticity factor 2:

Answer 14

Specific brands/products tend to have more elastic demand than categories of goods.

Question 15

Demand elasticity factor 3:

Answer 15

necessities have less elastic demand.

Question 16

Demand elasticity factor 4:

Answer 16

consumer search makes demand more elastic

Question 17

Demand elasticity factor 5:

Answer 17

demand gets more elastic over time.

Question 18

higher prices lead to greater revenue if…

Answer 18

demand is inelastic

Question 19

cross price elasticity of demand.

Answer 19

a measure of how responsive the demand of one good is to price changes of another.

Measures the change in quantity demanded that follows a 1% change in the price of another good.

Question 20

Cross price elasticity is positive for…

Answer 20

subsititute goods.

Question 21

cross price elasticity is negative for…

Answer 21

complement goods.

Question 22

cross price elasticity is near zero for…

Answer 22

independent goods.

Question 23

Income elasticity of demand

Answer 23

measures how responsive your demand for a good is to changes in your income.

It measures by what percent the quantity demanded will change following a 1% change in income.

Question 24

income elasticity of demand is positive for…

Answer 24

normal goods.

Question 25

income elasticity of demand is negative for…

Answer 25

inferior goods.

Question 26

price elasticity of supply

Answer 26

a measure of how responsive sellers are to price changes.

It measures the % change in quantity supplied that follows from a 1% price change.

Question 27

price elasticity of supply is…

Answer 27

positive.

Question 28

when supply is inelastic..

Answer 28

quantity is relatively unresponsive to price.

Question 29

when supply is elastic…

Answer 29

quantity is relatively reponsive to price.

Question 30

price elasticity of supply is all about…

Answer 30

flexibility

Question 31

supply elasticity factor 1:

Answer 31

inventories make supply more elastic.

Question 32

supply elasticity factor 2:

Answer 32

easily available variable inputs make supply elastic.

Question 33

supply elasticity factor 3:

Answer 33

extra capacity makes supply elastic

Question 34

supply elasticity factor 4:

Answer 34

Easy entry and exit makes supply more elastic.

Question 35

supply elasticity factor 5:

Answer 35

Over time, supply becomes more elastic.