2.4 Elasticities of Demand and Supply

Question 1

_ is a measure of the sensitivity of one variable to another.

Answer 1

Elasticity

Question 2

_ tells us the percentage change in one variable in response to a one percent change in another variable.

Answer 2

Elasticity

Question 3

_ is the measure of the responsiveness of demand for a commodity to changes in any of its determinants, such as the price of the commodity, price of related goods, and consumers’ income.

Answer 3

Elasticity of demand

Question 4

Accordingly, there are three basic elasticities:

Answer 4

I. Price elasticity of demand,
II. Cross-price elasticity of demand &
III. Income elasticity of demand

Question 5

_ is a measure of the degree of responsiveness (or sensitiveness) of consumers to changes in the price of the commodity itself.

Answer 5

Price elasticity of demand

Question 6

_ is the ratio of the percentage change in quantity demanded to the percentage change in price.

Answer 6

Price elasticity of demand

Question 7

Economists measure the degree of elasticity or inelasticity by the elasticity coefficient ( E^D P ), which is given by:
Price elasticity = _ or _

Answer 7

Proportionate change in quantity demanded / Proportionate change in price
or
Percentage change in quantity demanded / Percentage change in price

Question 8

Price elasticity of demand is of two types: _

Answer 8

Point elasticity and arc elasticity of demand.

Question 9

_ measures elasticity at a (given) point or for a very small change in price.

Answer 9

Point elasticity of demand

Question 10

Symbolically, we could write point elasticity of demand as:

Answer 10

Point elasticity = Change in Q / Quantity/Change in P / Price
or
Change in Q / Change in P multiplied by P / Q

Question 11

_ refers to price elasticity over a distance on the demand curve.

Answer 11

Arc elasticity of demand

Question 12

_ measures the average responsiveness of consumer demand to changes in price over a range of extended prices.

Answer 12

Arc elasticity of demand

Question 13

Symbolically, we could write arc elasticity of demand:

Answer 13

%change in Q / &change in P = Change in Q (P1+P2) / Change in P (Q1+Q2)

Question 14

From the down sloping demand curve, we know that price and quantity demanded are _ related.

Answer 14

inversely

Question 15

Because of the down sloping demand curve , the price elasticity coefficient of demand, Ed, will always be a _ number.

Answer 15

negative

Question 16

T/F
We usually ignore the minus sign and simply present the absolute value of the elasticity coefficient to avoid any ambiguity that might otherwise arise.

Answer 16

True

Question 17

Demand is said to be _ if a specific percentage change in price results in a larger percentage change in quantity demanded.

Answer 17

elastic

Question 18

In elastic demand, E^D P will be _.

Answer 18

greater than one

Question 19

Demand is said to be _ if a given percentage change in price is accompanied by a relatively smaller change in the quantity of the good or service.

Answer 19

Inelastic

Question 20

In inelastic demand, E^D P is _.

Answer 20

less than 1

Question 21

Demand is said to be _ if a percentage change in price and the accompanying percentage change in quantity demand are equal.

Answer 21

unitary elastic

Question 22

In unitary elastic, E^D P is _

Answer 22

1

Question 23

Demand is said to be _ if the quantity demanded of a certain
product is invariable relative to the change in the price.

Answer 23

Perfectly inelastic

Question 24

In perfectly inelastic, E^D P is _

Answer 24

0

Question 25

Demand is said to be _ if it denotes that a 1% change in price results in an infinite change in quantity demanded.

Answer 25

perfectly elastic

Question 26

_ shows that a change in the price of a good or service does not bring about in any change in the quantity demanded

Answer 26

Perfectly inelastic

Question 27

In _, the consumer can buy all possible quantities at the given price and nothing else at other prices.

Answer 27

Perfectly elastic

Question 28

The case separating elastic and inelastic demands is said to be _.

Answer 28

unitary elastic

Question 29

In _ %change in Q is greater than %change in P

Answer 29

Elastic demand

Question 30

In _ %change in Q is equal to %change in P.

Answer 30

Unitary elastic

Question 31

In _ %change in Q is less than %change in P

Answer 31

Inelastic demand

Question 32

In _ %change in Q is 0.

Answer 32

Perfectly inelastic

Question 33

In _ %change in Q is infinity.

Answer 33

Perfectly elastic

Question 34

The elasticity of demand depends on the following factors:

Answer 34

- Nature of the commodity - Availability of close substitutes - People with high incomes are less affected by price changes than people with low incomes. - Proportion of income spent on the commodity - Urgency of demand / postponement of purchase - Durability of a commodity - Product purchase frequency or recurrence of demand - Time

Question 35

The demand for necessities is _ because the demand does not change much with a change in price.

Answer 35

inelastic

Question 36

The demand for luxuries is _ in nature.

Answer 36

elastic

Question 37

The commodity that has the greatest number of substitutes has relatively _ demand.

Answer 37

elastic

Question 38

A commodity with fewer substitutes has relatively _ demand.

Answer 38

inelastic

Question 39

People with _ incomes are less affected by price changes than people with _ incomes.

Answer 39

high, low

Question 40

T/F When a small part of income is spent on the commodity, the price change affects the demand.

Answer 40

False, it does not