Microeconomics Definitions

Question 1

Price Elasticity of Demand

Answer 1

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

• Inelastic PED<1
• Elastic PED>1
• Unit Elastic PED=1
• Perfectly Inelastic PED=0
• Perfectly Elastic PED=infinity

Question 2

Price Elasticity of Supply

Answer 2

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

Question 3

Public Good

Answer 3

• Non-rivalrous and non-excludable, accessible to everyone and can be used by everyone at the same time
• Leads to the free-rider problem where the free market has no incentive to provide public goods

Question 4

Common Pool Resources

Answer 4

• Rivalrous but non-excludable, accessible to everyone but cannot be used by everyone at the same time
• Leads to the Tragedy of the Commons, lack of private ownership leads to over-use by private individuals

Question 5

Market Failure

Answer 5

Occurs when the free market fails to efficiently allocate resources for the production of goods and services