Chapter 3

Question 1

It measures the responsiveness of one variable to a certain change of another variable.

Answer 1

Elasticity

Question 2

The basic formula used to determine elasticity is:

Answer 2

Percentage change in variable x / Percentage change in variable y

or

%Δx / %Δy

Question 3

Types of elasticity

Answer 3

Elastic, Inelastic, Unitary, Perfectly Elastic, and Perfectly Inelastic

Question 4

if the percentage change in the quantity demanded exceeds the percentage in price.

measures the relationship between
change in quantity supplied following a change in price

Mga kagustuhan ng tao katulad ng makinarya,
produktong tinapay, tsokolate, gadget katulad ng laptop, computer.

Mga produktong madaling makonsumo
katulad ng pagkain, damit at pangunahing pangangailangan.

Answer 4

Elastic; Ed = >1

Question 4

If percentage change in quantity demanded is less than the percentage change in price

change in price causes a smaller percentage change in supply.

Mahalagang-mahalaga; wala halos pamalit (kuryente at tubig), basic goods

Example: hindi madaling makonsumo at halos
walang ibang katulad na produkto tulad ng condominium, antique na kagamitan, gusali o mga pabrika.

Answer 4

Inelastic; Ed = <1

Question 5

a change in one factor causes an equal or proportional change in another factor

Pantay lamang ang demand sa mgaproduktong apektado ng unitary elastic demand tulad ng mga makinarya, gusali, at maging mga obrang dibuho ng mga kilalang pintor.

Answer 5

Unitary; Ed = 1

Question 6

The curve is represented by a straight horizontal line and shows that the market demand for a product is directly tied to the price.

Example: karaniwang nagaganap sa mga produktong may malaking presyo at patuloy na nagbabago ang presyo tulad ng kagamitan sa opisina, kusina, livestock.

means that any decrease in the product price would immediately cause the supply to shift to zero - equal to infinity

Kapag mababa ang pagtatakda ng presyo,
babagsak sa zero ang supply ng produkto na
maghuhudyat ng kakayahang bumili nang maramihan ang mga mamimili. Example: pangunahing pangangailangan

Answer 6

Perfectly Elastic; Ed=∞/ infinite

Question 7

an economic condition in which a change in the price of a product or a service has no impact on the quantity demanded.

Mga produktong may patuloy na pagbabago sa presyo at nabibili sa anumang dami katulad ng school supplies, canned goods, CD/DVD

the price of a product will have no effect on
the supply

Mga produkto katulad ng mamahaling alahas, barko, makasaysayang gusali at eskultura.

Answer 7

Perfectly Inelastic; Ed=0

Question 8

Measures the responsiveness of demand after a change in a product’s own price.

Answer 8

Demand Elasticity

Question 9

This function shows three combinations:

Answer 9

Qd and P = Price Elasticity of Demand
Qd and Y = Income Elasticity of Demand
Qd and Prel = Cross-Price Elasticity of Demand

Question 10

Its is the percentage change in quantity demanded that occurs with respect to a percentage change in price.

Answer 10

Price Elasticity of Demand

Question 11

True or False: It is expected that the price elasticity of demand is positive because the relationship between price and quantity demanded is inversely related.

Answer 11

False: Negative

Question 12

It is the _______ value that is usually taken and the negative sign is omitted.

Answer 12

Absolute

Question 13

The flatness or steepness of the curve, is based on the total changes in price and quantity.

Answer 13

Slope

Question 14

it is concerned with the total change relative to price and quantity.

Answer 14

Elasticity

Question 15

When measuring a very small change in both price and quantity on a demand curve on a particular point, the above formula is used and is referred to as

Answer 15

Point Elasticity

Question 16

Determinants of Price Elasticity of Demand

Answer 16

1. Importance or degree of necessity of the goods
2. Number of available substitute
3. Proportion of income in price changes
4. Time period

Question 17

The more essential or necessary the goods or services, the more inelastic the demand.
Example: staple food, educational materials

Answer 17

Importance or degree of necessity of the goods

Question 18

Demands for goods with greater number of substitutes are elastic, while goods with less or no substitute have inelastic demand.

Answer 18

Number of available substitute

Question 19

Demand is inelastic for a product whose changes in price seemingly have no effect on the consumer income or budget. However, any change in price resulting to a substantial effect on consumers’ income has elastic demand.)

Answer 19

Proportion of income in price changes

Question 20

The longer the time period is, the less elastic or more inelastic the demand will be. This is because consumers have enough time to adjust their buying behavior.

Answer 20

Time period

Question 21

The responsiveness of quantity demanded to a change in income is known as the ________ _________. This measures the percentage change in demand over the percentage change in income.

Answer 21

Income Elasticity of Demand

Question 22

A good is considered as a normal good when its income elasticity is _______. And, inferior good when its income elasticity is _______.

Answer 22

Positive, Negative

Question 23

Normal good with an coefficient greater than 1 is known as ________GOODS while normal goods with an income elasticity of less than 1 yet manifest a positive result are known as __________GOODS

Answer 23

Luxury, Necessity

Question 24

measures the responsiveness of quantity demanded of a good to a change in the price of another good.

Answer 24

Cross-Price Elasticity of Demand

Question 25

Cross-Price Elasticity Formula:

Answer 25

Percentage change in Qd of Good x / Percentage change in Price of Good y

Question 26

It measures whether the good is substitute or a complementary.

Answer 26

Cross Price Elasticity of Demand

Question 27

are goods that are used in conjunction with other goods. The cross elasticity of demand for complementary goods is negative (-). As the price for one item increases, an item closely associated with that item and necessary for its consumption decreases because the demand for the main good has also dropped. Example: If the price of coffee increases, the quantity demanded for coffee stir sticks drops as consumers are drinking less coffee and need to purchase fewer sticks.

Answer 27

Complementary Goods

Question 28

are goods that can be used in place of another. The cross elasticity of demand for substitute goods is always positive (+) because the demand for one good increases when the price for the substitute good increases. Example: The demand for a competitor's brand of toothpaste rises when the price of one brand does, making toothpaste an example of a substitute good.

Answer 28

Substitute Goods

Question 29

a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.

Answer 29

Elasticity of Supply

Question 30

Determinants of Price Elasticity of Supply

Answer 30

1. Monetary or Intermediate 2. Short-run 3. Long-run

Question 31

In this period, supply will be perfectly inelastic and the supply is fixed.

Answer 31

Monetary or Intermediate

Question 32

In this state, supply is inelastic. The output of production can increase even if equipment is fixed.

Answer 32

Short-run

Question 33

In this period, supply is elastic. New firms are expected to enter or the old one may leave the industry.

Answer 33

Long-run

Question 34

Importance and Application of Elasticity

Answer 34

1. Has several applications both in business and economic decision making. 2. Helps every policy formulating body develop and/or formulate appropriate strategies and programs. 3. Can determine the effect of price changes on the revenue.