Topic 4: Elasticity

Question 1

The responsiveness (or sensitivity) of consumers and producers to price and income changes.

Answer 1

Elasticity

Question 2

Value: Elastic

Answer 2

> 1 or Δx > Δy

Question 3

Value: Inelastic

Answer 3

1 < or Δx < Δy

Question 4

Value: Unit elastic

Answer 4

= 1 or Δx = Δy

Question 5

Value: Perfectly elastic

Answer 5

Infinity or Δy will have an infinite effect on Δx

Question 6

Value: Perfectly inelastic

Answer 6

0 or Δy will have no effect on Δx

Question 7

Elasticity: > 1 or Δx > Δy

Answer 7

Elastic

Question 8

Elasticity: 1 < or Δx < Δy

Answer 8

Inelastic

Question 9

Elasticity: = 1 or Δx = Δy

Answer 9

Unit elastic

Question 10

Elasticity: Infinity or Δy will have an infinite effect on Δx

Answer 10

Perfectly elastic

Question 11

Elasticity: 0 or Δy will have no effect on Δx

Answer 11

Perfectly inelastic

Question 12

It tells us the degree of responsiveness of consumers to a price change of the commodity.

Answer 12

Price Elasticity of Demand (Ed)

Question 13

Price Elasticity of Demand (Ed) Equation

Answer 13

Ed= ΔQd/ Average of Qd ÷ ΔP/ Average of P

Question 14

Determinants of Price Elasticity of Demand

Answer 14

1. The importance or degree of necessity of the goods or services.
2. Number of available substitutes for goods and services
3. Proportion of income in price changes
4. Time period. The longer the time period, the more elastic or inelastic the demand will be. Consumers have the time to adjust.

Question 15

Determinants of Price Elasticity of Demand: Essential (Elastic or Inelastic)

Answer 15

Inelastic

Question 16

Determinants of Price Elasticity of Demand: Not so Essential (Elastic or Inelastic)

Answer 16

Elastic

Question 17

Determinants of Price Elasticity of Demand: Less or no substitutes (Elastic or Inelastic)

Answer 17

Inelastic

Question 18

Determinants of Price Elasticity of Demand: Huge number of substitutes (Elastic or Inelastic)

Answer 18

Elastic

Question 19

Determinants of Price Elasticity of Demand: Change in price of product that has no effect on income or budget (Elastic or Inelastic)

Answer 19

Inelastic

Question 20

Determinants of Price Elasticity of Demand: With effect on income or budget (Elastic or Inelastic)

Answer 20

Elastic

Question 21

It indicates the responsiveness of producers’ supply following a change in the price of the product

Answer 21

Price Elasticity of Supply (Es)

Question 22

Price Elasticity of Supply (Es) Equation

Answer 22

Es= ΔQs/ Average of Qs ÷ ΔP/ Average of P

Question 23

Price Elasticity of Supply

Answer 23

ES < 1 (Supply is inelastic)
ES > 1 (Supply is elastic)
ES = 1 (Supply is unit elastic)

Question 24

It is the degree of responsiveness of consumers to a price change of another commodity. Reaction of Consumers to Qd of product x when price of prod y changes.

Answer 24

Cross Price Elasticity of Demand (Exy)

Question 25

Cross Price Elasticity of Demand (Exy) Equation

Answer 25

Exy= ΔQdx/ Average of Qdx ÷ ΔPy/ Average of Py

Question 26

If EXY is positive, goods X and Y are _____________ , i.e., sales of good X move in the same direction as the change in the price of good Y.

Answer 26

Substitute Goods

Question 27

Price of Iphone decreases --- Qd of Samsung less; ________

Answer 27

Positive Substitute Goods

Question 28

When EXY is negative, the two goods are _____________, i.e., an increase in the price of good Y decreases the demand for good X.

Answer 28

Complementary Goods

Question 29

Price of gasoline increases ---- Qd of cars less; _______________

Answer 29

Negative Complementary Goods

Question 30

A near zero or zero coefficient of EXY would tell us that goods X and Y are _______________, i.e., an increase in the price of good Y will have no effect on the demand for good X.

Answer 30

Unrelated or independent goods

Question 31

Price of pandesal increases ---Qd of household tools; ________________

Answer 31

Zero No Relation

Question 32

The degree to which buyers respond to a change, in their incomes. Qd changes when Income changes.

Answer 32

Income Elasticity of Demand (consumers)

Question 33

Income Elasticity of Demand (consumers) Equation

Answer 33

Ei= ΔQd/ Average of Qd ÷ ΔI/ Average of I

Question 34

EI is positive when the good is a __________ such that more of the good is demanded when income increases- and -vice versa.

Answer 34

Normal good

Question 35

_________ if the computed EI is more than 1

Answer 35

Luxury

Question 36

_________ if the computed EI is less than than 1

Answer 36

Necessity

Question 37

A negative income elasticity of demand suggests that the good is an _____________, i.e., demand for the good decreases as income increases

Answer 37

Inferior good

Question 38

Second-hand clothes maybe considered as __________ while newly-made shoes may be considered as _____________.

Answer 38

1. Inferior Goods 2. Normal Goods

Question 39

Income Elasticity: Normal Goods

Answer 39

Positive elasticity > 0 = 1.89

Question 40

Income Elasticity: Inferior Goods

Answer 40

Negative elasticity < 0 = -1.89

Question 41

Income Elasticity: Normal, Luxury

Answer 41

Positive elasticity > 1 = 1.89

Question 42

Income Elasticity: Normal, necessity good

Answer 42

Positive elasticity < 1 = 0.89

Question 43

Type of Goods: Positive elasticity > 0 = 1.89

Answer 43

Normal goods

Question 44

Type of Goods: Negative elasticity < 0 = -1.89

Answer 44

Inferior goods

Question 45

Type of Goods: Positive elasticity > 1 = 1.89

Answer 45

Normal, luxury goods

Question 46

Type of Goods: Positive elasticity < 1 = 0.89

Answer 46

Normal, necessity good