question
What does the price elasticity of demand measure?
answer
how much the quantity demanded responds to a change in price
question
Why is it important for a business to understand the price elasticity of demand for it's products?
answer
...
question
If the cross-price elasticity of demand for two goods is positive then the goods are:
answer
substitutes
question
If the cross-price elasticity of demand for two goods is negative then the goods are:
answer
complements
question
If the value of the income elasticity of demand is positive, then the good is:
answer
normal
question
If the value of the income elasticity of demand is negative, then the good is:
answer
inferior
question
If the quantity purchased of a good declines as your income increases is the income elasticity of demand for the good positive or negative?
answer
negative
question
How do you calculate total revenue?
answer
price times quantity
question
On a downward sloping linear demand curve, where does total revenue reach its maximum value?
answer
midpoint of the demand curve
question
What happens to total revenue when demand is elastic and price rises?
answer
total revenue decreases
question
What happens to total revenue when demand is inelastic and price rises?
answer
total revenue increases
question
When demand is elastic, what is the numerical value of the price elasticity of demand?
answer
> 1
question
When demand is inelastic, what is the numerical value of the price elasticity of demand?
answer
< 1
question
When demand is unit elastic, what number does the price elasticity of demand equal?
answer
1
question
When demand is unit elastic, what happens to total revenue when the price changes?
answer
total revenue remains constant
question
Describe the price elasticity of demand for gasoline.
answer
short term ~ quantity of gasoline demanded falls only slightly
long term ~ more elastic, quantity of gasoline demanded falls more substantially
long term ~ more elastic, quantity of gasoline demanded falls more substantially
question
Describe the income elasticities for food and clothing.
answer
small income elasticities because people still buy them when their incomes are low
question
Draw a supply and demand curve showing the market for autographed Babe Ruth baseball cards.
answer
...
question
Which part of a demand curve is elastic, unit elastic, and inelastic?
answer
the first part is elastic the midpoint is unit elastic and the last part is inelastic
question
How does price elasticity of supply relate to firms' capacity for production?
answer
Because firms often have a maximum capacity for production, the elasticity of supply may be very high at low levels of quantity supplied and very low at high levels of quantity supplied
question
Why does the quantity supplied of most goods have a substantial response to a change in price in the long run?
answer
it's hard for firms to change the size of their factories to make more or less of a good over a short period of time
question
What is the midpoint method formula?
answer
[(Q2-Q1)/(Q2+Q1)/2]/[(P2-P1)/(P2+P1)/2]
question
What is the income elasticity of demand formula?
answer
Percentage change in quantity demanded/Percentage change in income
question
What is the cross-price elasticity of demand formula?
answer
Percentage change in quantity demanded of good 1/Percentage change in the price of good 2
question
What is the price elasticity of supply formula?
answer
Percentage change in quantity supplied/Percentage change in price
question
Which part of a supply curve is elastic, unit elastic, and inelastic?
answer
...
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