Elasticity

Question 1

Elasticity

Answer 1

Measures how sensitive Q demanded is to a change in price

Question 2

Inelastic Demand (not-sensitive)

Answer 2

When price rises, the quantity demanded barely changes

Question 3

Why is inelastic demand insensitive?

Answer 3

Products with inelastic demand have few substitutes and are necessities

Question 4

Elasticity Demand Coefficient

Answer 4

% change Q / % change P

Question 5

Inelastic Demand Coefficient

Answer 5

n < - 1

Question 6

Elastic Demand (sensitive)

Answer 6

When price rises, quantity demanded changes by a lot

Question 7

Why is elastic demand sensitive?

Answer 7

Products with elastic demand have many substitutes and are luxuries

Question 8

Elastic Demand Coefficient

Answer 8

n > -1

Question 9

Perfectly Inelastic

Answer 9

Change in price has no effect on quantity; n =0; Chemo, medication, insulin

Question 10

Perfectly Elastic

Answer 10

Producers can’t change price because on one will buy the product

Question 11

What is the problem with just looking at the slope to determine elasticity?

Answer 11

The unit problem; All depends on starting point and units of measure

Question 12

Inelastic Demand: When price rises (falls)

Answer 12

Revenue rises (falls); P and TR move in same direction

Question 13

Elastic Demand: When price rises (falls)

Answer 13

Revenue falls (rises); P and TR move in different directions

Question 14

Determinants of Elasticity

Answer 14

Substitues; Passage of Time; Definition of Market; Significance in budget

Question 15

Availability of Substitutes

Answer 15

When something is available, it is elastic because it is easy to replace

Question 16

Passage of Time

Answer 16

Finding fuel in the winter vs. summer

Question 17

Market

Answer 17

Easy to give up brand of cigarette compared to giving up cigarettes entirely

Question 18

Significance in Budget

Answer 18

When gum becomes more expensive we barely notice

Question 19

More narrow market is more sensitive because

Answer 19

There are more substitutes

Question 20

Cross-Price Elasticity (Cars and Floor Mats)

Answer 20

Shows how sensitive the quantity in one product is to the change in price of another; Substitutes or complements

Question 21

A positive cross-price elasticity means that the products are

Answer 21

Substitutes

Question 22

A negative cross-price elasticity means that the products are

Answer 22

Complements

Question 23

Income Elasticity (Apple and iPads)

Answer 23

Shows how sensitive the quantity of a product is to change in income

Question 24

A positive income elasticity means that the product is

Answer 24

Normal Good; Income goes up, people buy more

Question 25

A negative income elasticity means that the product is

Answer 25

Inferior Good

Question 26

Point Elasticity

Answer 26

Making points measures close together; Problem = not realistic

Question 27

Arc Elasticity

Answer 27

Takes average/midpoint; Problem = Don't use average in real world