Economics for Managers Chapter 3

Question 1

Demand Elasticity

Answer 1

A quantitative measurement (coefficient) showing the percentage change in the quantity demanded of a particular product relative to the percentage change in any one of the variables included in the demand function for that product.

Question 2

Price Elasticity of Demand (ep)

Answer 2

The percentage change in the quantity demanded of a given good, X, relative to a percentage change in its own price, all other factors assumed constant.

Question 3

Total Revenue

Answer 3

The amount of money received by a producer for the sale of its product, calculated as the price per unit times the quantity sold.

Question 4

Elastic Demand

Answer 4

The percentage change in quantity demanded by consumers is greater than the percentage change in price and |ep|>1.

Question 5

Inelastic Demand

Answer 5

The percentage change in quantity demanded by consumers is less than the percentage change in price and |ep|<1.

Question 6

Unitary Elasticity (or Unit Elastic)

Answer 6

The percentage change in quantity demanded is exactly equal to the percentage change in price and |ep|=1.

Question 7

Arc Price Elasticity of Demand

Answer 7

A measurement of the price elasticity of demand where the base quantity or price is calculated as the average value of the starting and ending quantities or prices.

Question 8

Point Price Elasticity of Demand

Answer 8

A measurement of the price elasticity of demand calculated at a point on the demand curve using infinitesimal changes in prices and quantities.

Question 9

Total Revenue Function

Answer 9

The functional relationship that shows the total revenue (price times quantity) received by a producer as a function of the level of output.

Question 10

Average Revenue

Answer 10

Total revenue per unit of output. Average revenue equals the price of the product by definition.

Question 11

Average Revenue Function

Answer 11

The functional relationship that shows the revenue per unit of output received by the producer at different levels of output.

Question 12

Marginal Revenue

Answer 12

The additional revenue that a firm takes in from selling an additional unit of output or the change in total revenue divided by the change in output.

Question 13

Marginal Revenue Function

Answer 13

The functional relationship that shows the additional revenue a producer receives by selling an additional unit of output at different levels of output.

Question 14

Perfectly Inelastic Demand

Answer 14

Zero elasticity of demand, illustrated by a vertical demand curve, where there is no change in quantity demanded for any change in price.

Question 15

Perfectly (or Infinitely) Elastic Demand

Answer 15

Infinite elasticity of demand, illustrated by a horizontal demand curve, where the quantity demanded would vary tremendously if there were any changes in price.

Question 16

Income Elasticity of Demand

Answer 16

The percentage change in the quantity demanded of a given good, X, relative to a percentage change in consumer income, assuming all other factors constant.

Question 17

Necessity

Answer 17

A good with an income elasticity between 0 and 1, where the expenditure on the good increases less than proportionately with changes in income.

Question 18

Luxury

Answer 18

A good with an income elasticity greater than 1, where the expenditure on the good increases more than proportionately with changes in income.

Question 19

Cross-price Elasticity of Demand

Answer 19

The percentage change in the quantity demanded of a given good, X, relative to the percentage change in the price of good Y, all other factors held constant.

Question 20

Advertising Elasticity of Demand

Answer 20

The percentage change in the quantity demanded of a good relative to the percentage change in advertising dollars spent on that good, all other factors held constant.