Chapter 6

Question 1

Price elasticity of demand

Answer 1

Percentage change in quantity demanded divided by percentage change in price

Question 2

Elastic

Answer 2

Greater than 1

Question 3

Inelastic

Answer 3

Less than 1

Question 4

Unit-elastic

Answer 4

Equals to 1

Question 5

Perfectly inelastic

Answer 5

=0, quantity demanded is unresponsive to price (vertical line)

Question 6

Perfectly elastic

Answer 6

=infinity, quantity demanded is infinitely responsive to price (horizontal line)

Question 7

Determinants of the price elasticity of demand

Answer 7

Availability of close substitutes for the good, the passage of time, whether the good is a luxury or necessity, definition of market , the share of the good in the consumer’s budget

Question 8

Total revenue

Answer 8

(price x quantity)

Question 9

Relationship between price elasticity of demand and total revenue

Answer 9

Inelastic: move in the same direction - Elastic: moves inversely

Question 10

Cross-price elasticity of demand

Answer 10

Price change in quantity demanded of one good divided by percent change in price of another good

Question 11

Luxury

Answer 11

A normal good with a quantity demanded that responds more to percent change

Question 12

Necessity

Answer 12

A normal good with a quantity demanded that responds less to percent change