Chapter 5

Question 1

elasticity

Answer 1

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

Question 2

price elasticity of demand

Answer 2

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

Question 3

price elasticity of demand equation

Answer 3

P.E.D.=% change in quantity/%percentage change in price

Question 4

unit elasticity

Answer 4

when the percentage change in quantity equals the percentage change in price, elasticity is 1

Question 5

perfectly inelastic

Answer 5

vertical demand curve, zero elasticity, when quantity demanded stays the same

Question 6

total revenue

Answer 6

the amount paid by buyers and received by sellers of a good computed as the price of the good times the quantity sold

Question 7

inelastic

Answer 7

only slightly responds to changes in the price, when elasticity is less than 1

Question 8

elastic

Answer 8

when the quantity responds to a change in price easily, when elasticity is more than 1

Question 9

income elasticity of demand

Answer 9

a measure of how much the quantity demanded of a good responds to a change in consumers income, computed as the % change in quantity demanded divided by the percentage change in income

Question 10

Income elasticity of demand equation

Answer 10

I.E.D= % change in quantity demanded/ % change in income

Question 11

normal goods

Answer 11

higher incomes raises quantity demanded

Question 12

inferior goods

Answer 12

higher income lowers the quantity demanded (bus tickets)

Question 13

cross-price elasticity of demand

Answer 13

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the % change in quantity demanded of the first good divided by the % change in price of the second good

Question 14

cross-price elasticity of demand equation

Answer 14

C.P.E.D.=%change in quantity demanded of good 1/ % change in the price of good 2

Question 15

price elasticity of supply

Answer 15

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the % change in price

Question 16

price elasticity of supply equation

Answer 16

P.E.S.=%change in quantity supplied/ % change in price