Price Elasticity of Demand

Question 1

price elasticity of demand

Answer 1

measures how responsive QD is to a price change.

Question 2

price elasticity formula

Answer 2

the percentage change in QD divided by by the percentage change in price

Question 3

inelastic demand

Answer 3

a change in price has relatively little effect on QD; the percentage change in QD is less than the percentage change in price; the resulting price elasticity has an absolute value less than 1.

Question 4

unit-elastic

Answer 4

the percentage change in QD equals the percentage change in price; the resulting price elasticity has an absolute value of 1.

Question 5

elastic demand

Answer 5

the percentage change in QD exceeds the percentage change in price; the resulting price elasticity has an absolute value that exceeds 1.

Question 6

Total Revenue

Answer 6

price multiplied by the QD at that price

Question 7

linear demand curve

Answer 7

a straight line demand curve; such a demand curve has a constant slope but usually has a varying price elasticity.

Question 8

perfectly elastic demand curve

Answer 8

a horizontal line reflecting a situation in which any price increase would reduce quantity demanded to zero; the elasticity has an absolute value of infinity.

Question 9

perfectly inelastic demand curve

Answer 9

a vertical line reflecting a situation in which any price change has no effect on the quantity demanded; the elasticity value is zero.

Question 10

unit-elastic demand curve

Answer 10

everywhere along the demand curve, the percentage change in price causes an equal but offsetting percentage change in quantity demanded, so total revenue remains the same; the elasticity has an absolute value of 1.

Question 11

constant-elasticity demand curve

Answer 11

the type of demand that exists when price elasticity is the same everywhere along the curve; the elasticity value is unchanged.

Question 12

what are the determinants of the price elasticity of demand?

Answer 12

Availability of substitutes, share of the consumer’s budget spent on that good, length of adjustment period, elasticity estimates.

Question 13

price elasticity of supply

Answer 13

a measure of responsiveness of QS to a price change.

Question 14

formula for price elasticity of supply

Answer 14

the percentage change in QD divided by the percentage change in price.

Question 15

inelastic supply

Answer 15

a change in price has relatively little effect on QS; the percentage change in QS is less than the percentage change in price; the resulting price elasticity has an absolute value less than 1.

Question 16

unit-elastic supply

Answer 16

the percentage change in QS equals the percentage change in price; the resulting price elasticity has an absolute value of 1.

Question 17

elastic supply

Answer 17

the percentage change in QS exceeds the percentage change in price; the resulting price elasticity has an absolute value that exceeds 1.

Question 18

perfectly elastic supply curve

Answer 18

a horizontal line reflecting a situation in which any price decrease drops the quantity supplied to zero; the elasticity value is infinity.

Question 19

perfectly inelastic supply curve

Answer 19

a vertical line reflecting a situation in which a price change has no effect on the quantity supplied; the elasticity value is 0.

Question 20

unit-elastic supply curve

Answer 20

a percentage change in price causes an identical percentage change in QS; depicted by a supply curve that is a straight line from the origin; the elasticity value equals 1.

Question 21

income elasticity of demand

Answer 21

the percentage change in demand divided by the percentage change in consumer income; the value is positive for normal goods and negative for inferior goods.

Question 22

cross-price elasticity

Answer 22

the percentage change in the demand of one good divided by the percentage change in the price of another good; its positive for substitutes, negative for complements, and zero for unrelated goods.