Module 5 - Elasticity

Question 1

___ is a measure of how responsive one variable is to a change in another variable.

Answer 1

Elasticity

Question 2

What is elasticity’s role in economics?

Answer 2

It can be used to measure a variety of different questions because it has no unit of measure - just a number

Question 3

___ is a measure of how responsive quantity demanded is to a chance in price; %ΔQd divided by %ΔP.

Answer 3

Price elasticity of demand (Ed)

Question 4

The price elasticity of demand is always ___ due to ___.

Answer 4

Negative

Law of Demand

Question 5

The ___ is a principle that states: as the price of a good, service or resource rises, the quantity demanded will fall, and vice versa (if all else remains constant).

Answer 5

Law of Demand

Question 6

If P increases then Qd ___.

Answer 6

Decreases

Question 7

If Qd increases then P ___.

Answer 7

Decreases

Question 8

___ is when the middle values are focused on in a specific range of prices and quantity; ΔP divided by 2.

Answer 8

Midpoint

Question 9

___ is price elasticity of demand greater than 1 in absolute value; consumers are more sensitive to changes in P; | Ed | > 1

Answer 9

Elastic demand

Wide linear demand curve

Question 10

___ is price elasticity of demand less than 1 in absolute value; consumers are less sensitive to changes in P; | Ed | < 1

Answer 10

Inelastic demand

Steep linear demand curve

Question 11

___ is price elasticity of demand equal to 1 in absolute value; P and Qd are equal; | Ed | = 1

Answer 11

Unit elastic demand

Question 12

___ is an infinite price elasticity of demand where Qd is responsive to a change in P, Qd decreases to zero; | Ed | = ∞

Answer 12

Perfectly elastic demand

Horizontal linear demand curve

Question 13

___ is when price elasticity of demand equal zero; Qd is non responsive to change in P; changes in price leave Qd unchanged; | Ed | = zero

Answer 13

Perfectly inelastic demand

Vertical linear demand curve

Question 14

Which demand curve is elastic and inelastic?

Answer 14

A - inelastic

B - elastic

Question 15

Which demand curve is perfectly elastic and perfectly inelastic?

Answer 15

C - perfectly elastic

D - perfectly inelastic

Question 16

If demand is elastic, ↓P will ___ TR.

Answer 16

↑TR

Question 17

If demand is inelastic ↑P will ___ TR.

Answer 17

↑TR

Question 18

If demand is elastic, ↑P will ___ TR.

Answer 18

↓TR

Question 19

If demand is inelastic, ↓P will ___ TR.

Answer 19

↓TR

Question 20

Which is more elastic?

A. Frozen pizza, frozen food, all food

B. Candy bars vs Cars

C. Coffee vs Iceberg Lettuce

Answer 20

A. Frozen pizza - all other food frozen food is a substitute

B. Candy bars - a 50% increase in a car vs a candy bar (candy bar is relatively small compared to income)

C. Iceberg lettuce - more substitutes for iceberg lettuce (bib lettuce, spinach, arugula, romaine lettuce, green veggies, etc) than coffee (tea, water, soft drinks, etc)

Question 21

Demand tends to be more ___ when more substitutions are available.

Answer 21

Elastic

Question 22

Demand tends to be more ___ when less substitutions are available.

Answer 22

Inelastic

Question 23

Demands tends to be more ___ when the P of a good or service is larger than proportion of income.

Answer 23

Elastic

Question 24

Demands tends to be more ___ when the P of a good or service is less than proportion of income.

Answer 24

Inelastic

Question 25

Demands tends to be more ___ when over time.

Answer 25

Elastic

Question 26

Inelastic: Necessity Elastic: Luxury What is a good or service that is inelastic? What is a good or service that is elastic?

Answer 26

Inelastic: Medical care, deodorant (Ed \> 1) Elastic: Vacation, perfume (Ed \< 1)

Question 27

What are the determinants of elasticity? 1. \_\_\_ 2. \_\_\_ 3. \_\_\_

Answer 27

1. Necessities 2. Luxuries 3. Time

Question 28

\_\_\_ is a measure of the effect of a change in the price of one product on the quantity demanded of another; %ΔQdb divided by %ΔPa; Eb/a.

Answer 28

Cross-price elasticity of demand (Eb/a) Positive & Negative

Question 29

Cross-price elasticity of demand is always ___ for substitutes.

Answer 29

Positive Always selling one or the other (+)

Question 30

Cross-price elasticity of demand is always ___ for complements.

Answer 30

Negative Neither is being sold (-)

Question 31

\_\_\_ is a measure of how responsive demand is to a change in consumer income; %ΔQd divided by %ΔPincome; Ei.

Answer 31

Income elasticity of demand (Ei)

Question 32

Inferior goods have a ___ income elasticity of demand (Ei).

Answer 32

Negative (Ei)

Question 33

Normal goods have a ___ income elasticity of demand (Ei).

Answer 33

Positive (Ei)

Question 34

\_\_\_ is a measure of how responsive quantity supplied is to price changes; %ΔQs divided by %ΔP; Es.

Answer 34

Price elasticity of supply (Es)

Question 35

Price elasticity of supply is always ___ due to \_\_\_.

Answer 35

Positive due to the Law of Supply

Question 36

\_\_\_ is a principle that states: as the price of a G, S, or R rises, the quantity supplied will increase and vice versa (if all else remains constant).

Answer 36

Law of Supply

Question 37

\_\_\_ is price elasticity of supply greater than 1; consumers are more sensitive to changes in P; Es \> 1

Answer 37

Elastic supply Wide linear supply curve

Question 38

\_\_\_ is price elasticity of supply less than 1; consumers are less sensitive to changes in P; Es \< 1

Answer 38

Inelastic supply Steep linear supply curve

Question 39

\_\_\_ is price elasticity of supply equal to 1; P and Qs are equal; Es = 1

Answer 39

Unit-elastic supply

Question 40

\_\_\_ is an infinite price elasticity of supply where Qs is responsive to a change in P, Qs decreases to zero; Es = ∞

Answer 40

Perfectly elastic supply Horizontal linear supply curve

Question 41

\_\_\_ is when price elasticity of supply equals zero; Qs is non responsive to change in P; changes in price leave Qs unchanged; Es = zero

Answer 41

Perfectly inelastic supply Vertical linear supply curve

Question 42

Which supply curve is elastic and inelastic?

Answer 42

C - inelastic D - elastic

Question 43

Which supply curve is perfectly elastic and perfectly inelastic?

Answer 43

A - perfectly inelastic B - perfectly elastic

Question 44

\_\_\_ is the time period in which producers cannot increase their economic resources to increase Qs.

Answer 44

Immediate period

Question 45

\_\_\_ is the time period in which at least one input of production is fixed, but other inputs can be changed.

Answer 45

Short run

Question 46

\_\_\_ is the time period in which all inputs of production can be changed.

Answer 46

Long run

Question 47

When consumers have less time to adjust to changes, demand becomes \_\_\_.

Answer 47

More inelastic

Question 48

The greater the change in price, the ___ reliable the elasticity estimate is going to be.

Answer 48

Less

Question 49

The ___ of a demand curve is the change in price divided by a change in Qd.

Answer 49

Slope

Question 50

What is Eb/a signifying?

Answer 50

For every 1% increase in a substitute or complement () there is an increase or decrease in ()

Question 51

For most goods, the longer the time frame, the more ___ the elasticity of a good.

Answer 51

Elastic Long-run more elastic than short-run