Elasticity

Question 1

What is the formula for the price elasticity percentage?

Answer 1

% change in quantity demanded/ % change in price

Question 2

What does it mean when the quantity demanded remains constant for a product when its price changes? [Perfectly inelastic demand]

Answer 2

price elasticity of demand is zero (Ep = 0) and the product is said to have a perfectly inelastic demand [line only goes straight up]

Question 2

What does it mean when the quantity demanded changes by an infinitely large percentage in response to a very small price change? [Perfectly Elastic Demand]

Answer 2

price elasticity of demand is infinity (Ep = Infinity) and the good is said to have perfectly elastic demand [line only goes across]

Question 3

What does it mean when the price elasticity is greater than one/quantity demanded is more than price change?

Answer 3

demand is said to be price elastic and the gentler the demand curve, the more elastic is the demand

Question 4

What does it mean when the price elasticity is between 0 and 1/ quantity demanded is less than price change?

Answer 4

demand is price inelastic and the steeper the demand curve, the more inelastic the demand is

Question 5

What factors affect the elasticity of demand?

Answer 5

• Closeness of substitutes
• Proportion of Income spent on the good
• Time to adjust to price changes

Question 6

What does elastic mean?

Answer 6

When prices go up for a product, demand falls.

Question 7

What does in-elastic mean?

Answer 7

When prices increases for a product, the demand is not impacted.

Question 8

What are some examples of elastic products?

Answer 8

Perfume, staples, etc.

Question 9

What are some examples of inelastic products?

Answer 9

Necessities that are hard to replace or find alternatives for

Question 10

What does the price elasticity of supply mean?

Answer 10

It is a measure of the responsiveness of the quantity supplied of a good to a change in its price, all other factors being held constant.

Question 11

What are the factors that can affect the elasticity of supply?

Answer 11

• Resource substitution possibilities
• Time frame for the supply decision

Question 12

What is the formula for total revenue?

Answer 12

Price times Quantity

Question 13

Is Total Revenue profit?

Answer 13

False.

Question 14

What is the formula for profit?

Answer 14

Total Revenue - Total Cost

Question 15

What happens when price decreases? (demand is elastic)

Answer 15

The Quantity and Total Revenue will increase.

Question 16

What happens when price decreases? (demand is inelastic)

Answer 16

The Total Revenue will fall, Quantity will increase less than the percent number of the percent the price decreased.