Elasticity

Question 1

Define elasticity.

Answer 1

The responsiveness of the quantity demanded or supplied to changes in price.

Question 2

Draw a graph of an elastic and inelastic supply curve.

Answer 2

Green - inelastic
Pink - elastic

Question 3

3 factors

What determines elasticity?

Answer 3

1. The number and closeness of substitutes.
2. The proportion of income spent on the good
3. The time period

Question 4

What is the equation for price elasticity?

Answer 4

Question 5

When price elasticity is greater than |1|, the demand is…

Answer 5

Elastic

Question 6

When price elasticity is less than |1|, the demand is…

Answer 6

Inelastic

Question 7

Describe unit elasticity

Answer 7

When price elasticity is equal to 1. The quantity demanded and the price change by the same proportion.

Question 8

Describe how elasticity affects consumer expenditure after a price rise.

Answer 8

Total consumer expenditure is equal to the quantity demanded x price.
If demand is elastic, the proportional change in Q is greater than P, so expenditure increases.
If demand is inelastic, the proportional change in Q is less than P, so expenditure decreases.

Question 9

Describe income elasticity.

Answer 9

The extent to which demand of a good changes in response to a change in income.

Question 10

Why might a good be income inelastic?

Answer 10

If the good is an essential or necessity, its demand will not be affected much by income changing.