MODULE 13

Question 1

Price elasticity of supply =

Question 2

A measure of how much the demand for a good is affected by changes in consumers’ incomes. Allows us to determine whether a good is a normal or inferior good, as well as to measure how intensely the demand for the good response to changes in income.

Answer 2

Income elasticity of demand
% change in quantity demanded/
% change in income

Question 3

When the income elasticity of demand is positive.
The quantity demanded at any given price increases as income increases. Correspondingly, the quantity demanded at any given price decreases as income falls.

Answer 3

Normal good

Question 4

When the income elasticity of demand is negative.
The quantity demanded at any given price decreases as income increases. Likewise, the quantity demanded at any given price increases as income falls.

Answer 4

Inferior good

Question 5

The demand for a good is income, elastic, if the income elasticity of demand for that good is greater than one. When income rises, the demand for income elastic goods rises faster than income.

Answer 5

Income-elastic

Question 6

The demand for a good is income inelastic, if the income elasticity of demand for that good is positive, but less than one. When income rises the demand for income, inelastic, good rises, but more slowly than income.

Answer 6

Income-inelastic

Question 7

(of demand or supply) SENSITIVE to changes in price or income

Answer 7

ELASTIC