SAS9: Elasticity of Demand

Question 1

It pertains to the responsiveness of buyers to price changes.

Answer 1

Price Elasticity of Demand

Question 2

It is an economic measure of how responsive the quantity demand for a good or service is to a change in income.

Answer 2

Income Elasticity of Demand

Question 3

It measures the responsiveness in the quantity demanded of one good when the price changes for another good.

Answer 3

Cross Elasticity of Demand

Question 4

It is an economic concept used to measure the change in the
aggregate quantity demanded for a good or service in relation to price movements of that good or service.

Answer 4

Elasticity

Question 5

It refers to the reaction or response of the buyers to changes in the prices of goods and services.

Answer 5

Demand Elasticity

Question 6

It measures the percent change in quantity demanded divided by the percentage in price of goods and services.

Answer 6

Elasticity of Demand

Question 7

The logical reactions of the buyers when prices will change is they reduce consumption when prices increase, and tend to increase purchases when price falls. However, such reactions vary in accordance to the _________ and the _________ of the buyers.

Answer 7

nature of the products (essential or luxury goods) ; particular needs

Question 8

When prices will increase, buyers ______ consumption. When prices will fall, buyers ______ purchases.

Answer 8

reduce ; increase

Question 9

What are the types of Demand Elasticity?

Answer 9

Elastic Demand, Inelastic Demand, Unitary Demand, Perfectly Elastic Demand, & Perfectly Inelastic Demand

Question 10

This type of demand happens when a change in price has a relatively large effect on the quantity of the good demanded.

Answer 10

Elastic Demand

Question 11

This type of demand happens when a change in price has a relatively small effect on the quantity of good demanded.

Answer 11

Inelastic Demand

Question 12

This type of demand happens when a change in price results to an equal change in quantity demanded.

Answer 12

Unitary Demand

Question 13

This type of demand happens when elasticity coefficient equals infinity as shown in the illustration.

Answer 13

Perfectly Elastic Demand

Question 14

This type of demand happens when any change in price creates no change in quantity demanded.

Answer 14

Perfectly Inelastic Demand

Question 15

What are the Determinants of Demand Elasticity

Answer 15

Availability of Substitutes, Share of Consumer’s budget spent on goods, & Duration of the adjustment period

Question 16

The greater the availability of substitutes for a good and the more similar these are to the good in question, the greater the good’s elasticity of demand.

Answer 16

Availability of Substitutes

Question 17

The more important the item is a share of the consumer’s budget, other things constant, the greater is the income effect of a change in price, so the more elastic is the demand for the item.

Answer 17

Share of Consumer’s budget spent on goods

Question 18

The longer the adjustment period, the easier is to find lower –priced substitutes. Thus, the longer the period of adjustment, the more responsive the change in quantity demanded is to a given change in price.

Answer 18

Duration of the adjustment period

Question 19

What is the formula of Price Elasticity of Demand?

Answer 19

E = △Q/Q over △P/P

Question 20

What does Q in E = △Q/Q over △P/P mean?

Answer 20

Original Quality

Question 21

What does P in E = △Q/Q over △P/P mean?

Answer 21

Original Price

Question 22

What does △Q in E = △Q/Q over △P/P mean?

Answer 22

Difference between original and new quantity

Question 23

What does △P in E = △Q/Q over △P/P mean?

Answer 23

Difference between original and new price