Lecture 6/ Chapter 5

Question 1

The price elasticity of demand is computed as

Answer 1

the percentage change in the quantity demanded divided by the percentage change in price.

Question 2

Demand tends to be more elastic :

Answer 2

the larger the number of close substitutes.
if the good is a luxury.
the more narrowly defined the market.
the longer the time period.

Question 3

Perfectly Inelastic

Answer 3

Quantity demanded does not respond to price changes.

Question 4

Perfectly Elastic

Answer 4

Quantity demanded changes infinitely with any change in price.

Question 5

Unit Elastic

Answer 5

Quantity demanded changes by the same percentage as the price.

Question 6

Total revenue

Answer 6

is the amount paid by buyers and received by sellers of a good.
Computed as TR = P times Q

Question 7

With an inelastic demand curve, an increase in price leads to

Answer 7

A decrease in quantity that is proportionately smaller. Thus, total revenue increases.

Question 8

With an elastic demand curve, an increase in the price leads to

Answer 8

A decrease in quantity demanded that is proportionately larger. Thus, total revenue decreases.