Chapter 3 Vocab

Question 1

Price Elasticity of Demand

Answer 1

A measure of the responsiveness of the quantity demanded to changes in its price.

Question 2

Price Inelastic Demand

Answer 2

Relatively low responsiveness of the quantity demanded to changes in price(0

Question 3

Price elastic demand

Answer 3

Relatively high responsiveness of the quantity demanded to changes in price(1

Question 4

Unitary PED/Unit Elasctic

Answer 4

When there is a unit elastic demand curve, or when the percentage change in price is equal to the percent change in quantity demanded(PED=1).

Question 5

Perfectly Inelastic Demand

Answer 5

When there is no change in the quantity demanded of a good regardless of the change in price(PED=0).

Question 6

Perfectly Elastic Demand

Answer 6

When there is an infinitely large responsiveness by any change in price, meaning that any change in price would infinitely increase or decrease the demand of the good(PED=infinity).

Question 7

Necessities

Answer 7

Goods that are essential or necessary in our lives, they have an inelastic PED and in income inelastic PED.

Question 8

Luxuries

Answer 8

Goods that are not necessary, they have an elastic PED and in income elastic PED

Question 9

Substitutes

Answer 9

The more substitutes/close substitutes a good has, the more elastic the demand of the good.

Question 10

Length of Time (PED)

Answer 10

The more time a consumer has to make a purchasing decision, the more elastic the demand of the good.

Question 11

Proportion of Income

Answer 11

The higher the proportion one’s income that is spent on the good, the more elastic the demand of the product

Question 12

Total Revenue

Answer 12

The amount of money received by firms when they sell a good; it is equal to the price of the good times the quantity of the good sold.

Question 13

Primary Commodities

Answer 13

Goods arising directly from the use of natural resources or the factor of production ‘land’.

Question 14

Manufactured Products

Answer 14

Goods produced by labor usually working together with capital as well as raw materials.

Question 15

Income Elasticity of Demand (YED)

Answer 15

A measure of the responsiveness of demand to changes in income and involves demand curve shifts.

Question 16

YED =

Answer 16

(%ΔQd)/(%ΔY)

Question 17

PED =

Answer 17

(%ΔQd)/(%ΔP)

Question 18

PES =

Answer 18

(%ΔQs)/(%ΔP)

Question 19

Income Inelastic Demand

Answer 19

When the percentage increase in income produces a smaller percentage increase in Qd. Necessities are income inelastic goods.(YED<1)

Question 20

Income Elastic Demand

Answer 20

When the percentage increase in income produces a larger percentage increase in Qd. Luxuries are income elastic goods. (YED>1)

Question 21

Engle Curve

Answer 21

A graph with the income on the y axis and quantity on the x-axis that; used to show the YED at different incomes.

Question 22

Price Elasticity of Supply (PES)

Answer 22

A measure of the responsiveness of the quantity of a good supplied to changes in its price.

Question 23

Price Elastic Supply

Answer 23

When the percentage change in the quantity supplied of a product is greater than the percent change in the price of the product(PES>1).

Question 24

Price Inelastic Supply

Answer 24

When the percentage change in the quantity supplied of the product is smaller than the percentage change in the price(PES<1).

Question 25

Unitary PES/ Unit Elastic Supply

Answer 25

When the percentage change in the quantity supplied of a product is equal to the percentage change in the price of the product.

Question 26

Perfectly Inelastic Supply

Answer 26

When there is no change in the quantity supplied of a good regardless of what happens to price(PES=0).

Question 27

Perfectly Elastic Supply

Answer 27

When the percentage change in the quantity supplied is infinite(PES=infinity)

Question 28

Length of Time (PES)

Answer 28

The more time a firm has to react to a change in price, the more elastic the supply of the product.

Question 29

Mobility of the FOP

Answer 29

The easier it is to shift the factors of production, the greater the elasticity of the supply of the product.

Question 30

Spare Capacity of Firms

Answer 30

The greater the spare capacity of firms, the more elastic the supply.

Question 31

Ability to Store Stocks

Answer 31

Firms that have an ability to store stocks are likely to have a higher PES for their products.

Question 32

Rate at which costs increase

Answer 32

If the costs of producing extra output increases rapidly, then the supply will be inelastic.