CHAPTER 5

Question 1

what is elasticity

Answer 1

measures how much quantity demanded responds to change in price

Question 2

What is inelastic demand

Answer 2

small response in quantity demanded when price rises

value is less than 1

consumers have a low willingness to shop elsewhere

Question 3

what is elastic demand

Answer 3

large response in quantity demanded when price rises

value is greater than 1

consumers have a high willingness to shop elsewhere

Question 4

what is elasticity formula

Answer 4

price elasticity of demand =

percentage change in quantity demand /

percentage change in price

Question 5

Unit elastic

Answer 5

value equal to 1

Question 6

what is perfectly inelastic demand

Answer 6

price elasticity of demand equals 0 ; quantity demanded does not respond to change in price

Vertical line on graph

Question 7

What is perfectly elastic demand

Answer 7

price elasticity of demand equals infinity; quantity demanded has an infinite response to any change in price

horizontal line on graph

Question 8

More substitutes mean what

Answer 8

greater elasticity of demand

Question 9

Total revenue formula

Answer 9

TR = P x Q

Question 10

What happens if demand for a product is elastic

Answer 10

Total revenue increases

the percentage increase in quantity is greater than the percentage decrease in price.

Question 11

What happens if a product is inelastic

Answer 11

Total revenue decreases

the percentage increase in quantity is less than the percentage decrease

Question 12

Elasticity supply

Answer 12

measures by how much quantity supplied responses to change in price

Question 13

inelastic supply

Answer 13

small response in quantity supplied when price rises

Question 14

elastic supplied

Answer 14

large response in quantity supplied when price rises

Question 15

Perfectly inelastic supply

Answer 15

value equals exactly 0

vertical line on graph

Question 16

perfectly elastic supply

Answer 16

infinite value
horizontal line on graph

Question 17

Elasticity of supply formula 1 midpoint formula

Answer 17

percentage change in quantity supplied /
percentage change in price

Q1 -Q0 / (Q1+Q0 /2)
/
P1-P0 / (P1+P1/2)

Question 18

Cross elasticity of supply formula

Answer 18

percentage change in quantity demanded /

percentage change in price of a substitute or complement

Q1 -Q0 /
(Q1+Q0/2)

/

P1-P0 /
(P0+P1)/2

Question 19

What is cross elasticity of supply

Answer 19

measures the responsiveness of the demand for a product to a change I the price of a substitute or complement

Question 20

Substitutes cross elasticity

Answer 20

positive value

Question 21

complements

Answer 21

negative value

Question 22

income of elasticity of demand

Answer 22

measures the responsiveness of the demand for a product or service to a change in income

Question 23

income elasticity of demand formula

Answer 23

percentage change in quantity demanded /

percentage change in income

Question 24

normal good

Answer 24

positive value

Question 25

inferior good income elasticity

Answer 25

negative value

Question 26

income inelastic demand

Answer 26

positive value less than 1

Question 27

income elastic demand

Answer 27

positive value greater than 1

Question 28

What influences price elasticity of demand

Answer 28

Time to adjust Substitutes Proportion of income spend on a product— greater proportion of income means spent more elastic demand

Question 29

When is total revenue decreased when price is raised slightly

Answer 29

When Demand is elastic

Question 30

When is totally revenue increased when price is raised slightly

Answer 30

When demand is inelastic

Question 31

When priced is lowered slightly and total revenue is increased what is demand

Answer 31

Elastic

Question 32

What is an important factors affecting price elasticity of supply

Answer 32

- The length of time at the producers disposal - availability of additional inputs - more available inputs means more elastic supply Like products that have shorter times for Production have a more elastic supply

Question 33

Elasticity of supply formula

Answer 33

Percentage change in quantity supplied / Percentage change in price If the percentage change in supplied is less than the percentage change in price the elasticity of supply is inelastic. Quantity supplied is unresponsive to change in price

Question 34

How to get % change in quantity supplied

Answer 34

Elasticity of supply x % change in price

Question 35

Finding percentage change

Answer 35

Subtract earlier value from new one, Divide the new number (difference) from first value and multiply by 100

Question 36

Who pays tax when demand is inelastic

Answer 36

The buyers

Question 37

Who pays tax when demand is elastic

Answer 37

The sellers

Question 38

Who pays the tax when supply is inelastic

Answer 38

The sellers

Question 39

Who pays the tax when supply is elastic.

Answer 39

Smaller portion paid by Buyers

Question 40

If demand is perfectly elastic who pays tax

Answer 40

Entirely by producers

Question 41

If demand is perfectly inelastic who pays tax

Answer 41

Entirely the consumer

Question 42

If supply is perfectly inelastic who pays the tax

Answer 42

Entirely by Producers

Question 43

If supply is perfectly elastic who pays the tax

Answer 43

The consumer

Question 44

Elasticity and tax

Answer 44

Smaller portion of tax paid by producer when demand is inelastic buyers pay more The more elastic demand is producer or seller pays more tax buyers pay less The more elastic supply is the more seller pay tax buyers pay less The more inelastic supply is the buyers pay more tax seller pay less

Question 45

A straight line demand curve

Answer 45

Price elasticity if demand decreases