Elasticity FINALS

Question 1

the ratio between the percentage change in the QD or QS and the corresponding percent change in price

Answer 1

Elasticity

Question 2

the percentage change in the QD of a good or service divided by the percentage change in the price.

Answer 2

Price elasticity of DEMAND

Question 3

the percentage change in the QS divided by the percentage change in the price.

Answer 3

Price elasticity of SUPPLY

Question 4

measures the percentage change in the demand for good I that is caused by a 1% change in the price of good J

Answer 4

Cross-Price Elasticity of Demand

Question 5

Positive Values - Goods that are typically used in place of one another

Answer 5

Substitutes

Question 6

Negative Values - Goods that are typically used together

Answer 6

Complements

Question 7

the percentage change in the QD divided by the percentage change in the income.

Answer 7

Income Elasticity of Demand

Question 8

Positive Values - Higher income raises the QD

Answer 8

Normal Goods

Question 9

Positive elasticity values GREATER THAN 1 - tend to have large income elasticities because consumers feel that they can do without theses goods altogether if their incomes are too low

Answer 9

Luxuries / Luxury Goods

Question 10

Positive elasticity values 0 to 1 - tend to have small income elasticities because consumers choose to buy some of these goods even when their incomes are low

Answer 10

Necessities / Necessity Goods

Question 11

Negative Values - Higher income lowers the QD

Answer 11

Inferior Goods

Question 12

one that obtains the same elasticity between two price points whether there is a price increase or decrease
*use for calculations where there is a large percentage change in price or quantity

Answer 12

Midpoint Method (ARC Method)

Question 13

E = % Change in Quantity / % Change in Price
*use for calculations where there is a small percentage change in price or quantity

Answer 13

Point Method