elasticity

Question 1

price elasticity of demand

Answer 1

measures the response in quantity demanded in a change of price

average of two!!
change in qd/change in price

Question 2

elastic demand

Answer 2

change of price is significantly smaller than change of quantity

x>1 (ignore negative)

Question 2

perfectly elastic demand

Answer 2

horizontal straight —-

will demand at a given price, demand none any higher

Question 3

inelastic demand

Answer 3

change in price is significantly larger than change in quantity

x

Question 4

perfectly inelastic demand

Answer 4

demand is constant at any price

Question 5

unitary demand

Answer 5

quantity demanded changes by the same proportion

Question 6

availability of substitutes

Answer 6

greater number of subs = more elastic

Question 7

factors affecting price elasticity of demand

Answer 7

availability of substitutes
whether a good is a necessity or not
proportion of income spent 
time
definition of market: broader market, more elastic. eg brand

Question 8

necessity or luxury

Answer 8

luxury- elastic

necessity - inelastic

Question 9

proportion of income spent

Answer 9

higher proportion, higher chance of it being elastic

Question 10

time

Answer 10

short run, goods are inelastic

long run, elastic as consumers can change

Question 11

calculating elasticity - total revenue

Answer 11

price x q. sold

- moves in opposite direction of price change - elastic

Question 12

elasticity of supply

Answer 12

refers to the quantity supplied to a change in price

Question 13

inelastic supply

Answer 13

quantity supplied is proportionally less than a change in the price

Question 14

elastic supply

Answer 14

quantity supplied changes proportionally more than a change in the price

Question 15

income elasticity of demand

Answer 15

measures the percentage change in quantity demanded for a change in inclme

Question 16

relevance of income elasticity

Answer 16

• may lead to a change in food products, not necessarily the amount of food
• ## government uses this knowledge to control the economy

Question 18

cross elasticity of demand

Answer 18

• measures the responsiveness in q.d of one good to changes in the price of another good
• positive - substitutes
• neg - complements

Question 19

elasticity of supply determinants

Answer 19

• > time: increase time to adjust production

- > costs of inputs: substitute production / substitute inputs