Elasticity

Question 1

What is the price elasticity of demand ?

Answer 1

the responsiveness of consumers to a change in the price of a product

Question 2

How to determine the price elasticity of demand?

Answer 2

compare the percentage change in the quantity demanded with the percentage change in price.

Question 3

If consumers are responsive to price changes, then the demand: ——-
If consumers are not responsive, then the demand is: ——-

Answer 3

1- Elastic

2-Inelastic

Question 4

If the price elasticity of demand is greater than 1: —–
If the price elasticity of demand equals 1: ——–
If the price elasticity of demand is less than 1: ——-

Answer 4

demand is elastic.
demand is unit elastic.
demand is inelastic.

Question 5

How to calculate the Mid Point Method:

Answer 5

Percent change in quantity = [ New Q – Initial Q/ (New Q + Initial Q) ÷ 2] x 100
Percent change in price = [ New p- Initial P/ (New P + initial P) ÷ 2] x 100

Question 6

Are slope and elasticity the same thing

Answer 6

No.

Question 7

What is/does a slope do?

Answer 7

• measures how the quantity demanded changes when the price changes.
• depends on the units of measurement of price and quantity.
• cannot be used to compare the demands for different goods.

Question 8

Elasticity along a linear Demand curve

Answer 8

Unit elastic at the midpoint
Elastic above the mid point curve
Inelastic Below the mid point curve

Question 9

If two linear curves run through the same point, the flatter one is more

Answer 9

Elastic

Question 10

Rare Types of elasticity:

Perfectly Inelastic is:
Unitary inelastic:
Perfectly Elastic:

Answer 10

Vertical line/ Ed=0
Curve/ Ed= 1
Horizontal Line/ Ed= infinity

Question 11

Determinants of Price elasticity:

Answer 11

• Substitutability (more substitues= more elasticity)
• Proportion of income (Higher the price= more elastic)
• Luxuries vs necessities ( Luxuries= Elastic, Necessities= Inelastic)
• Time ( Over time= more elastic)

Question 12

Total Revenue:

Answer 12

The amount spent on a good by a consumer, and received by its sellers equals the price of the good multiplied by the quantity of the good sold.

Question 13

Total revenue test.

Answer 13

A method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change

Question 14

Results of a revenue test:

Answer 14

If demand is elastic:
A given percentage rise in price brings a larger percentage decrease in the quantity demanded.
And total revenue decreases.

If demand is inelastic:
A given percentage rise in price brings a smaller percentage decrease in the quantity demanded.
And total revenue increases.

Question 15

Price Elasticity of Supply:

Answer 15

A measure of the extent to which the quantity supplied of a good changes when the price of the good changes