Exam #2- Chapter 4+5

Question 1

Normal Good

Answer 1

A good for which other things being equal, an increase in income leads to an increase in demand

Question 2

Inferior Good

Answer 2

A good for which an increase in price leads to a decrease in demand.

Question 3

Substitues

Answer 3

If an increase in the price of one causes an increase in the demand for the other

Question 4

Complements

Answer 4

An increase in the price of one causes a fall in demand for the other

Question 5

Price Elasticity of Demand

Answer 5

% Change in Quantity demanded / % Change of Price

Question 6

Calculating Elasticity

Answer 6

end value- start value
divided by midpoint
*100

Question 7

Highest Price Elasticity

Answer 7

Whichever demand falls the most (percent)

Question 8

When is a price elasticity higher?

Answer 8

If an item has more substitutes the price elasticity is higher b/c ppl can easily switch to something cheaper

Question 9

Inelastic demand

Answer 9

• The demand curve is steep
• E < 1 (elasticity is less than 1)

Question 10

Elastic demand

Answer 10

• the demand curve is flat
• E > 1 (elasticity is more than 1)

Question 11

Revenue

Answer 11

P * Q

Question 12

Which of the following events would cause the eq’m quantity to fall?

Answer 12

Demand and supply both decrease

Question 13

Which of the following events must cause the eq’m price to fall?

Answer 13

Demand decreases and supply increases.