[ECON] Micro Test #2

Question 1

what is the equation for price elasticity of demand?

Answer 1

% change in quantity demanded
% change in price

Question 2

what is price elasticity of demand?

Answer 2

how sensitive quantity demanded is to a change in price

Question 3

what are the determinants of price elasticity of demand?

Answer 3

substitutes: the more substitutes, the more elastic

timeframe: the more timeframe to adjust to a price change, the more elastic

income share: the more expensive compared to income, the more elastic

luxury/necessity: luxuries are elastic and vice versa

narrowness of market: the smaller of range of goods, the more elastic (similar to substitutes)

Question 4

what does an elasticity of 0 mean?

Answer 4

perfect inelastic

Question 5

what does an elasticity less than 1 mean?

Answer 5

relatively inelastic

Question 6

what does an elasticity of one mean?

Answer 6

unit elastic

Question 7

what does an elasticity greater than 1 mean?

Answer 7

relatively elastic

Question 8

what elasticity means perfect elastic?

Answer 8

infinity

Question 9

what elasticity means relatively inelastic?

Answer 9

less than 1

Question 10

what does inelasticity mean?

Answer 10

the product is not sensitive to a change in price

Question 11

are products inelastic or elastic in the short run?

Answer 11

inelastic

Question 12

are products elastic or inelastic in the long run?

Answer 12

elastic

Question 13

is inelastic demand flat or steep?

Answer 13

steeper

Question 14

is elastic demand flat or steep?

Answer 14

flatter

Question 15

what is price elasticity of supply?

Answer 15

how sensitive the quantity supplied is to a change in price

Question 16

what is the equation for price elasticity of supply?

Answer 16

% change in quantity supplied
% change in price

Question 17

t/f: do not use absolute values for PED

Answer 17

false; use absolute values

Question 18

t/f: use absolute values for PES

Answer 18

true

Question 19

what is cross-price elasticity of demand?

Answer 19

how sensitive the quantity of demand for one product is to a change in price of another product

Question 20

what is the formula for XED?

Answer 20

% change in quantity demanded of product a
% change in price of product b

Question 21

what does a negative XED mean?

Answer 21

the products are complements (hot dogs and hot dog buns)

Question 22

what does a positive XED mean?

Answer 22

the products are substitutes (coke and sprite)

Question 23

what is income elasticity of demand?

Answer 23

how sensitive the quantity demanded is to a change in income

Question 24

what is the equation for income elasticity of demand?

Answer 24

% change in quantity demanded
% change in income

Question 25

what does a negative YED mean?

Answer 25

inferior good (income and demand are inverse; example is ramen)

Question 26

what does a positive YED mean?

Answer 26

normal good (income and demand are direct; example is clothing)

Question 27

if the total revenue increases, the product is:

Answer 27

elastic

Question 28

if the total revenue decreases, the product is:

Answer 28

inelastic

Question 29

what is the equation for the total revenue test?

Answer 29

price X quantity sold