LU 5 Elasticity

Question 1

Elasticity

Answer 1

Measure of responsiveness or sensitivity

Question 2

Why economists use Elasticity

Answer 2

• to compare the price sensitivities of different products with each other
• to determine whether one market is more price sensitive than the other
• is a unit free measure
• to compare markets it does not matter how they measure the two markets
• allow economists to quantify the differences among markets without standardizing the units of measurement

Question 3

Inelastic demand

Answer 3

quantity demanded is not very sensitive to change in price

Question 4

Inelastic supply

Answer 4

quantity supplied is not very sensitive to change in the price

Question 5

Elastic demand

Answer 5

quantity demanded is sensitive to changes in the price

Question 6

Elastic supply

Answer 6

quantity supplied is sensitive to changes in the price.

Question 7

Price elasticity of demand

Answer 7

Measures the responsiveness of the quantity demanded to changes in the price of the product

Question 8

Income elasticity of demand

Answer 8

Measures the responsiveness of the quantity demanded to changes in the income

Question 9

Negative income elasticity

Answer 9

inferior goods

Question 10

Cross elasticity of demand

Answer 10

Measure the responsiveness of the quantity demanded of a particular good to changes in the price of a related good.

Question 11

Complements, the cross elasticity of demand

Answer 11

Always negative

Question 12

Substitutes, the cross elasticity of demand

Answer 12

Always positive

Question 13

Price elasticity of supply

Answer 13

Measures the responsiveness of the quantity supplied of a product to changes in the price of the price