Micro 2

Question 1

Price elasticity of demand (PED)

Answer 1

The responsiveness of a demand to a change in price.

Question 2

Price elasticity of supply (PES)

Answer 2

The responsiveness of supply to a change in price

Question 3

Perfectly Price elastic good

Answer 3

PED/PES= Infinity

Question 4

Price elastic good

Answer 4

PED/PES> 1

Question 5

Unitary Price elastic good

Answer 5

PED/PES= 1

Question 6

Price inelastic good

Answer 6

PED/PES< 1

Question 7

Perfectly Price inelastic good

Answer 7

PED/PES= 0

Question 8

Cross Elasticity of demand (XED)

Answer 8

The responsiveness of demand for one good to a change in price of another good

Question 9

Substitute good

Answer 9

Positive XED; if good B becomes more expensive, demand for good A rises

Question 10

Complementary good

Answer 10

Negative XED; if good B becomes more expensive, demand for good A falls

Question 11

Income elasticity of demand (YED)

Answer 11

The responsiveness of demand to a change in income

Question 12

Luxury good

Answer 12

YED> 1; an increase in incomes causes an even bigger increase in demand

Question 13

Inferior good

Answer 13

YED< 0; goods which see a fall in demand as income increases

Question 14

Normal good

Answer 14

YED> 0; demand increases as income increases