Elasticity

Question 1

what is elasticity

Answer 1

responsiveness of quantity demanded to changes in its price

Question 2

Price Elasticity

Answer 2

Always negative, so must take the absolute value
Interpretation (ranges):
- Ep > 1 – Elastic Demand
- Ep = 1 – Unit-Elastic Demand
- Ep < 1 – Inelastic Demand

Question 3

Describe Profit

Answer 3

Profit = Total Revenue - Total Cost
Total Revenue = Price x Quantity

Question 4

Cross-Elasticity

Answer 4

Quantity X and Price Y (2 goods)
Exy - Positive = Substitute Goods
- Negative = Complementary Goods

Question 5

Income Elasticity

Answer 5

Ei < 0 = Inferior good (negative)
Ei > 0 = Normal good (positive) – inelastic
*Ei > 1 = Luxury good – elastic