Chapter 5 Mire Notes

Question 1

Does the law of demand have a negative relationship or positive relationship between price and quantity demanded

Answer 1

Negative

Question 2

What happens to total revenue as you move down the slope

Answer 2

Two things happen

Total revenue first increases then it reaches a maximum and then it starts to decrease

The quantity demanded continues to increase are you move down the slope

Question 3

What is income elasticity

Answer 3

Extent to which consumer purchases respond to a change in consumer income

Question 4

What is the formula for income elasticity of demand

Answer 4

Percent change in quantity demanded / percent change in income

Question 5

Does demand in income always move in the same direction

Answer 5

No

Question 6

With regards to income elasticity but two types of goods could you have

Answer 6

1. Inferior good

2. Normal good

Question 7

Describe an inferior good what happens when income increases

Answer 7

When income increases it leads to a decrease in quantity demanded

Question 8

Is an inferior good positive or negative income elasticity of demand

Answer 8

Negative income elasticity of demand

Question 9

What is the relationship of a normal good with regards to income elasticity

Answer 9

Demand and income are positive

The demand increases when income increases

Question 10

What type of good has a positive income elasticity of demand

Answer 10

A normal good

Question 11

If the positive income elasticity of demand is greater than one what type of good is this

Answer 11

It is a luxury good or a superior good

Question 12

If the positive income elasticity of demand is less than one what type of good is this

Answer 12

Necessity good

Question 13

What if an income elasticity of demand is zero

Answer 13

Income is not associated with the change in the demand of a good

Question 14

What does cross elasticity of demand measure

Answer 14

It measures the degree of responsiveness in the quantity demanded of one good in response to a change in price of another good

Question 15

What is the formula for cross price elasticity of demand

Answer 15

Percent change in quantity demanded of good 1 / percent change in price of good 2

Question 16

What is meant when they have a high positive cross price elasticity

Answer 16

They are substitutes

The demand for both goods moves opposite directions

Question 17

What is meant when you have a negative cross price elasticity

Answer 17

The goods are complements

When price falls, demand for both goods increase

They move in the same direction

Question 18

With regards to cross price elasticity of demand zero represents what

Answer 18

Goods are independent of each other

Question 19

If cross price elasticity is greater than zero what does this mean

Answer 19

The two goods are substitutes

Question 20

If the cross price elasticity of demand is less than zero what are the goods

Answer 20

Complements

They have a negative relationship

Question 21

If the cross price elasticity of demand is more than zero what are they

Answer 21

They are substitutes

They have a positive relationship

Question 22

If crawlspace elasticity is zero then what are the goods

Answer 22

The goods are independent

Question 23

If cross price elasticity is less than zero what are the goods

Answer 23

Compliments

Question 24

What does price elasticity and total revenue explain

Answer 24

Hello my total expenditure varies along the market demand curve