1. This document provides a multiple choice tutorial on elasticity of demand and supply. It covers topics like the definition of elasticity, calculating price elasticity of demand, and factors that influence elasticity like availability of substitutes.
2. It presents 31 multiple choice questions and answers related to these concepts, with explanations for each answer.
3. The questions cover how to calculate price elasticity, what elastic, inelastic, and unit elastic demand mean, and how factors like advertising, budget size, and substitutes influence a product's elasticity.
Elasticity of supply measures how responsive the quantity supplied is to changes in price. It can be elastic, inelastic, or unitary elastic. Elasticity is calculated by taking the percentage change in quantity supplied divided by the percentage change in price. If the result is greater than 1, supply is elastic. If it is less than 1, supply is inelastic. If it is exactly 1, supply is unitary elastic. Elastic supply responds strongly to price changes in the long run, while inelastic supply is not very sensitive to price changes in the short run. Unitary elastic supply means quantity and price move proportionately.
This document discusses the concepts of price elasticity of demand and supply. It begins by introducing price elasticity and how it measures the responsiveness of quantity demanded or supplied to changes in price. It then provides formulas for calculating the price elasticity coefficient and discusses what values indicate elastic versus inelastic demand. The document also examines graphical analysis of elasticity and how it varies along a demand curve. It analyzes applications of elasticity concepts and discusses determinants of a good's price elasticity. Finally, it briefly introduces other types of elasticity like cross elasticity of demand and income elasticity of demand.
The price elasticity of demand compares the percent change in quantity demanded to the percent change in price.
To calculate PED we first calculate percent change in quantity demanded and the corresponding percent change in price as we move along the demand curve.
Elasticity measures how responsive buyers and sellers are to changes in market conditions like price and income. Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. Elasticity analysis can be used to determine how changes in supply or demand will impact market equilibrium and total revenue.
Elasticities of Demand and Supply and ApplicationKarl Obispo
Elasticities of Demand and Supply and Application
[1] Elasticity refers to the responsiveness of quantity demanded or supplied to changes in factors like price and income. There are different types of elasticity including own price elasticity and cross price elasticity.
[2] Elasticities are measured using the percentage change formula and can be point or arc elasticities. Own price elasticity measures the responsiveness of quantity to price changes. Inelastic demands are less responsive than elastic demands.
[3] Elasticities help determine how taxes impact consumers versus producers. Demands more elastic than supply means producers bear more of the tax burden.
Price Elasticity of Demand measures how responsive demand is to changes in price. It is calculated by taking the percentage change in quantity demanded divided by the percentage change in price. Perfectly inelastic demand does not change with price changes. Inelastic demand changes less than proportionately to price changes. Unit elastic demand changes proportionately. Elastic demand changes more than proportionately. Factors like substitutes, necessity, income share, and time period impact price elasticity. Producers use elasticity estimates to predict revenue and tax impacts and for price discrimination.
This document discusses key concepts relating to elasticity of demand including:
1. Elasticity measures the responsiveness of quantity demanded to changes in price, income, or prices of related goods.
2. Demand is elastic if consumers are responsive to price changes and inelastic if they are unresponsive.
3. Total revenue tests can determine if demand is elastic or inelastic based on the relationship between price and total revenue.
Elasticity of supply measures how responsive the quantity supplied is to changes in price. It can be elastic, inelastic, or unitary elastic. Elasticity is calculated by taking the percentage change in quantity supplied divided by the percentage change in price. If the result is greater than 1, supply is elastic. If it is less than 1, supply is inelastic. If it is exactly 1, supply is unitary elastic. Elastic supply responds strongly to price changes in the long run, while inelastic supply is not very sensitive to price changes in the short run. Unitary elastic supply means quantity and price move proportionately.
This document discusses the concepts of price elasticity of demand and supply. It begins by introducing price elasticity and how it measures the responsiveness of quantity demanded or supplied to changes in price. It then provides formulas for calculating the price elasticity coefficient and discusses what values indicate elastic versus inelastic demand. The document also examines graphical analysis of elasticity and how it varies along a demand curve. It analyzes applications of elasticity concepts and discusses determinants of a good's price elasticity. Finally, it briefly introduces other types of elasticity like cross elasticity of demand and income elasticity of demand.
The price elasticity of demand compares the percent change in quantity demanded to the percent change in price.
To calculate PED we first calculate percent change in quantity demanded and the corresponding percent change in price as we move along the demand curve.
Elasticity measures how responsive buyers and sellers are to changes in market conditions like price and income. Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. Elasticity analysis can be used to determine how changes in supply or demand will impact market equilibrium and total revenue.
Elasticities of Demand and Supply and ApplicationKarl Obispo
Elasticities of Demand and Supply and Application
[1] Elasticity refers to the responsiveness of quantity demanded or supplied to changes in factors like price and income. There are different types of elasticity including own price elasticity and cross price elasticity.
[2] Elasticities are measured using the percentage change formula and can be point or arc elasticities. Own price elasticity measures the responsiveness of quantity to price changes. Inelastic demands are less responsive than elastic demands.
[3] Elasticities help determine how taxes impact consumers versus producers. Demands more elastic than supply means producers bear more of the tax burden.
Price Elasticity of Demand measures how responsive demand is to changes in price. It is calculated by taking the percentage change in quantity demanded divided by the percentage change in price. Perfectly inelastic demand does not change with price changes. Inelastic demand changes less than proportionately to price changes. Unit elastic demand changes proportionately. Elastic demand changes more than proportionately. Factors like substitutes, necessity, income share, and time period impact price elasticity. Producers use elasticity estimates to predict revenue and tax impacts and for price discrimination.
This document discusses key concepts relating to elasticity of demand including:
1. Elasticity measures the responsiveness of quantity demanded to changes in price, income, or prices of related goods.
2. Demand is elastic if consumers are responsive to price changes and inelastic if they are unresponsive.
3. Total revenue tests can determine if demand is elastic or inelastic based on the relationship between price and total revenue.
The document discusses various concepts related to elasticity, including:
- Price elasticity of demand measures the responsiveness of quantity demanded to price changes. Inelastic demand means a small change in quantity despite a large price change.
- Determinants of elasticity include the availability of substitutes, the time period considered, and whether a product is a necessity or luxury.
- Elastic supply means suppliers can quickly adjust quantity supplied in response to price changes. Inelastic supply means difficulty changing quantity supplied despite price fluctuations.
The document discusses elasticity, specifically price elasticity of demand. It defines elasticity and explains how to calculate the price elasticity of demand using percentage changes in price and quantity. It provides examples of calculating price elasticity of demand values for different goods. It also categorizes goods based on their elasticity, such as inelastic, elastic, unit elastic and perfectly inelastic/elastic demands. Additional factors that can impact a good's elasticity are discussed such as availability of substitutes, necessities vs luxuries, the time horizon, and importance in a buyer's budget.
This document discusses concepts related to price elasticity of demand and supply. It defines price elasticity of demand as the percentage change in quantity demanded divided by the percentage change in price. It categorizes elasticity as elastic (above 1), unit elastic (equal to 1), or inelastic (below 1). Price elasticity determines how total revenue is affected by a price change. The document also discusses determinants of elasticity, income elasticity of demand, and cross-price elasticity.
The document discusses the concept of elasticity of demand, including the different types (price, income, cross, and promotional elasticity). It provides information on measuring elasticity, factors that affect elasticity, and how elasticity influences business decisions regarding pricing, revenues, and policymaking. Elasticity is an important concept for understanding how demand responds to various changes, which is significant for business managers and economic policymakers.
The document discusses different types of elasticity of demand including price elasticity, income elasticity, cross elasticity, substitution elasticity, and advertising elasticity. It defines each type and provides formulas for measuring elasticity. Some key points include:
- Price elasticity measures the responsiveness of demand to a change in price. It can be perfectly elastic, unitary, or perfectly inelastic.
- Income elasticity indicates whether a good is a necessity or luxury based on whether demand increases or decreases with income.
- Cross elasticity captures the relationship between the demand for one good and the price of another good, such as substitutes or complements.
- Substitution elasticity measures how easily consumers can substitute one
The document discusses the concept of elasticity, which measures the responsiveness of quantity demanded or supplied to price changes. There are three types of elasticity:
1. Price elasticity measures how quantity demanded responds to price changes. Demand can be elastic, inelastic, or unitary.
2. Income elasticity measures how quantity demanded responds to changes in consumer income.
3. Cross elasticity measures how the quantity demanded of one good responds to price changes of another good. It shows whether goods are substitutes or complements.
Elasticity of supply also measures how quantity supplied responds to price changes. Determinants like storage costs, production ability, and time affect whether supply is elastic or
1. Price elasticity of supply measures the responsiveness of quantity supplied to a change in price.
2. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.
3. The elasticity of supply depends on factors like the type of product, production capacity, and time horizon. Products and industries with more flexible inputs and time to adjust will have a more elastic supply.
This document discusses different types of elasticity, including price elasticity of demand, cross elasticity of demand, and income elasticity of demand. It explains how to measure elasticity using various methods like percentage change method, total expenditure method, point method, and arc method. Factors affecting price elasticity of demand are also covered, such as availability of substitutes, consumer loyalty, necessities vs luxuries, and proportion of income spent. The relationship between elasticity and total revenue is described. Demand can be perfectly inelastic, inelastic, unitary elastic, or perfectly elastic depending on the responsiveness of quantity to price changes.
This document defines elasticity and discusses different types of elasticity, including:
- Price elasticity of demand measures responsiveness of quantity demanded to price changes. It can be elastic, inelastic, or unitary.
- Income elasticity of demand measures responsiveness of quantity demanded to changes in income. Goods can be normal, inferior, luxury, or necessity.
- Cross elasticity of demand measures responsiveness of demand for one good to price changes of other goods.
- Price elasticity of supply measures responsiveness of quantity supplied to price changes. Supply can be elastic, inelastic, or unitary. Determinants include time period and ability to adjust inputs.
Elasticity Of Supply Micro Economics ECO101Sabih Kamran
The document discusses elasticity of supply and demand. It defines elasticity of supply as the responsiveness of quantity supplied to a price change when other factors remain constant. Elasticity of demand refers to the responsiveness of quantity demanded to a price change. It also discusses how elasticity/inelasticity affects total revenue when price changes. Specifically, a price cut increases total revenue if demand is elastic but decreases it if demand is inelastic. The document provides formulas for calculating elasticities and discusses factors that influence elasticity, such as availability of substitutes and proportion of income spent.
1. A new, more productive variety of paddy increases supply, shifting the supply curve to the right.
2. With inelastic demand, this leads to a large fall in price and a proportionately smaller increase in quantity sold.
3. As a result, total revenue for farmers falls despite the increased supply.
Elasticity measures the responsiveness of quantity to changes in price. Price elasticity of demand is calculated by taking the percentage change in quantity demanded over the percentage change in price. Demand is inelastic if the percentage change in quantity is less than the percentage change in price, elastic if it's greater, and unitary if changes are equal. Factors like substitutes, necessity, income spent, and storage affect elasticity.
Elasticity measures the responsiveness of quantity to price changes. It allows economists to compare markets without standardizing units. There are own price elasticities of demand and supply that measure responsiveness of quantity to the good's own price. Demand is more price sensitive when elasticity is further from zero. Total expenditures can increase or decrease with price changes depending on elasticity. Other elasticities include cross price and income elasticities.
This document discusses the price elasticity of supply. It defines price elasticity of supply as the relationship between a change in quantity supplied and a change in price. It also provides the formula for calculating price elasticity of supply. Supply can be elastic, unit elastic, or inelastic depending on the coefficient. The document lists factors that affect price elasticity of supply, such as factor substitution possibilities, spare production capacity, stock levels, and time frames. Short-term supply may be more inelastic due to fixed factors, while long-run supply is more elastic.
Elasticity measures the responsiveness of quantity demanded to a change in price. It is calculated by finding the percentage changes in quantity and price and taking the ratio. An elasticity over 1 means demand is elastic and sensitive to price, under 1 means inelastic demand not sensitive to price, and exactly 1 means unitary elastic demand where quantity and price move proportionately. Demand for necessities tends to be inelastic while luxuries have elastic demand more impacted by price changes.
This document discusses the concept of elasticity in economics, including price elasticity of demand, price elasticity of supply, cross elasticity, and income elasticity. It provides definitions and formulas for calculating each type of elasticity. Examples are given to illustrate how to compute elasticity coefficients and determine whether two products are substitutes, complements, or unrelated based on cross elasticity. The document also examines the total revenue test and how total revenue moves in relation to price changes depending on whether demand is elastic or inelastic.
The document discusses different types of elasticity of demand, including:
1) Income elasticity of demand measures the response of quantity demanded to a change in income. Necessities have income inelastic demand while luxuries have income elastic demand.
2) Types of income elasticity include zero, negative, unitary, greater than one, and less than one.
3) Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. It can be positive, negative, or zero.
05 price elasticity of demand and supplyNepDevWiki
Price elasticity of demand measures how responsive quantity demanded is to price changes. It is calculated as the percentage change in quantity divided by the percentage change in price. Elastic demand occurs when this is above 1, inelastic below 1, and unitary elastic at 1. Perfectly elastic demand is horizontal, while perfectly inelastic is vertical. Factors like substitutes, budget share, and adjustment time influence elasticity. Income elasticity measures responsiveness to income changes, while cross elasticity measures responsiveness between related goods. Price elasticity of supply measures responsiveness of quantity supplied to price. Tax incidence depends on demand elasticity, with inelastic demand leading to consumers paying more of the tax.
This document discusses the concept of elasticity of demand in economics. It defines elasticity of demand as the percentage change in quantity demanded divided by the percentage change in a determinant of demand. The key determinants discussed are price, income, and the price of related goods. The document outlines different types of price elasticity including perfectly elastic, perfectly inelastic, relatively elastic, and relatively inelastic. It also discusses methods for measuring price elasticity including percentage, point, and arc methods. Finally, it covers income elasticity and cross elasticity as well as factors that influence elasticity and applications of elasticity concepts.
Copy of Theory of demand and Elasticity (2).pptxCeddiaTaylor1
The document discusses concepts related to demand, including consumer surplus, demand curves, price elasticity of demand, and income elasticity of demand. It provides definitions and formulas for calculating elasticities. Consumer surplus is defined as the benefit consumers receive above the market price they pay. Demand curves can be used to graphically represent consumer surplus. Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. Income elasticity of demand measures the responsiveness of quantity demanded to changes in consumer income. The document also discusses factors that determine elasticities and the importance and uses of measuring elasticities.
The document is a multiple choice quiz about demand, supply and markets. It contains 37 questions that test understanding of key concepts like demand curves, shifts in demand and supply, equilibrium price and quantity, surpluses and shortages. The questions cover how changes in factors like price, income, technology, taxes and the number of producers/consumers can cause the demand and supply curves to shift, resulting in changes to equilibrium price and quantity in the market.
Exam1. Economics is aa. social science that studies g.docxSANSKAR20
Exam
1. Economics is a:
a. social science that studies goods with no alternative uses.
b. natural science that studies goods with no alternative uses.
c. social science concerned chiefly with how people choose among alternatives.
d. social science concerned chiefly with reasons why society has unlimited resources.
2. Scarcity exists when:
a. a choice must be made among two or more alternatives.
b. we face the notion of "all other things unchanged."
c. countries and people find themselves facing poverty.
d. the notions of normative economics come into play.
3. A free good is:
a. also a scarce good.
b. a relatively abundant good.
c. a good with no opportunity cost.
d. a good with relatively low opportunity cost.
4. Suppose that voters in your community pass a one-cent sales tax increase to fund education, knowing full well they will have to forgo other goods they typically consume. This primarily addresses the economic question of:
a. How will each good be produced?
b. For whom shall the goods be produced?
c. Why will the resources be used to produce goods?
d. What goods and services should a society produce?
5. A factor of production that has been produced for use in the production of other goods and services is:
a. labor.
b. money.
c. capital.
d. natural resources.
6. The textbook classifies technology as _______ and entrepreneurs as _______ .
a. knowledge; persons who seek profit by finding new ways to organize factors of production
b. capital; labor
c. labor skills; capital
d. a factor of production; a factor of production
7. The production possibilities curve represents the fact that:
a. the economy will automatically end up at full employment.
b. an economy's productive capacity increases proportionally with its population.
c. if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.
d. economic production possibilities have no limit.
8. An economy is said to have a comparative advantage in producing a particular good if it:
a. can produce more of all goods than another economy.
b. can produce less of all goods than another economy.
c. has the highest cost for producing that good.
d. has the lowest cost for producing that good.
9. A negative relationship between the quantity demanded and price is called the law of ______.
a. demand
b. diminishing marginal returns
c. market clearing
d. supply
10. If people demand more of product A when the price of B falls, then A and B are:
a. not related.
b. substitutes.
c. complements.
d. inferior.
11. The primary difference between a change in demand and a change in the quantity demanded is:
a. a change in demand is a movement along the demand curve, and a change in quantity demanded is a shift in the demand curve.
b. a change in quantity demanded is a movement along the demand curve, and a change in demand is a shift in the demand curve.
c. both a change i ...
The document discusses various concepts related to elasticity, including:
- Price elasticity of demand measures the responsiveness of quantity demanded to price changes. Inelastic demand means a small change in quantity despite a large price change.
- Determinants of elasticity include the availability of substitutes, the time period considered, and whether a product is a necessity or luxury.
- Elastic supply means suppliers can quickly adjust quantity supplied in response to price changes. Inelastic supply means difficulty changing quantity supplied despite price fluctuations.
The document discusses elasticity, specifically price elasticity of demand. It defines elasticity and explains how to calculate the price elasticity of demand using percentage changes in price and quantity. It provides examples of calculating price elasticity of demand values for different goods. It also categorizes goods based on their elasticity, such as inelastic, elastic, unit elastic and perfectly inelastic/elastic demands. Additional factors that can impact a good's elasticity are discussed such as availability of substitutes, necessities vs luxuries, the time horizon, and importance in a buyer's budget.
This document discusses concepts related to price elasticity of demand and supply. It defines price elasticity of demand as the percentage change in quantity demanded divided by the percentage change in price. It categorizes elasticity as elastic (above 1), unit elastic (equal to 1), or inelastic (below 1). Price elasticity determines how total revenue is affected by a price change. The document also discusses determinants of elasticity, income elasticity of demand, and cross-price elasticity.
The document discusses the concept of elasticity of demand, including the different types (price, income, cross, and promotional elasticity). It provides information on measuring elasticity, factors that affect elasticity, and how elasticity influences business decisions regarding pricing, revenues, and policymaking. Elasticity is an important concept for understanding how demand responds to various changes, which is significant for business managers and economic policymakers.
The document discusses different types of elasticity of demand including price elasticity, income elasticity, cross elasticity, substitution elasticity, and advertising elasticity. It defines each type and provides formulas for measuring elasticity. Some key points include:
- Price elasticity measures the responsiveness of demand to a change in price. It can be perfectly elastic, unitary, or perfectly inelastic.
- Income elasticity indicates whether a good is a necessity or luxury based on whether demand increases or decreases with income.
- Cross elasticity captures the relationship between the demand for one good and the price of another good, such as substitutes or complements.
- Substitution elasticity measures how easily consumers can substitute one
The document discusses the concept of elasticity, which measures the responsiveness of quantity demanded or supplied to price changes. There are three types of elasticity:
1. Price elasticity measures how quantity demanded responds to price changes. Demand can be elastic, inelastic, or unitary.
2. Income elasticity measures how quantity demanded responds to changes in consumer income.
3. Cross elasticity measures how the quantity demanded of one good responds to price changes of another good. It shows whether goods are substitutes or complements.
Elasticity of supply also measures how quantity supplied responds to price changes. Determinants like storage costs, production ability, and time affect whether supply is elastic or
1. Price elasticity of supply measures the responsiveness of quantity supplied to a change in price.
2. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.
3. The elasticity of supply depends on factors like the type of product, production capacity, and time horizon. Products and industries with more flexible inputs and time to adjust will have a more elastic supply.
This document discusses different types of elasticity, including price elasticity of demand, cross elasticity of demand, and income elasticity of demand. It explains how to measure elasticity using various methods like percentage change method, total expenditure method, point method, and arc method. Factors affecting price elasticity of demand are also covered, such as availability of substitutes, consumer loyalty, necessities vs luxuries, and proportion of income spent. The relationship between elasticity and total revenue is described. Demand can be perfectly inelastic, inelastic, unitary elastic, or perfectly elastic depending on the responsiveness of quantity to price changes.
This document defines elasticity and discusses different types of elasticity, including:
- Price elasticity of demand measures responsiveness of quantity demanded to price changes. It can be elastic, inelastic, or unitary.
- Income elasticity of demand measures responsiveness of quantity demanded to changes in income. Goods can be normal, inferior, luxury, or necessity.
- Cross elasticity of demand measures responsiveness of demand for one good to price changes of other goods.
- Price elasticity of supply measures responsiveness of quantity supplied to price changes. Supply can be elastic, inelastic, or unitary. Determinants include time period and ability to adjust inputs.
Elasticity Of Supply Micro Economics ECO101Sabih Kamran
The document discusses elasticity of supply and demand. It defines elasticity of supply as the responsiveness of quantity supplied to a price change when other factors remain constant. Elasticity of demand refers to the responsiveness of quantity demanded to a price change. It also discusses how elasticity/inelasticity affects total revenue when price changes. Specifically, a price cut increases total revenue if demand is elastic but decreases it if demand is inelastic. The document provides formulas for calculating elasticities and discusses factors that influence elasticity, such as availability of substitutes and proportion of income spent.
1. A new, more productive variety of paddy increases supply, shifting the supply curve to the right.
2. With inelastic demand, this leads to a large fall in price and a proportionately smaller increase in quantity sold.
3. As a result, total revenue for farmers falls despite the increased supply.
Elasticity measures the responsiveness of quantity to changes in price. Price elasticity of demand is calculated by taking the percentage change in quantity demanded over the percentage change in price. Demand is inelastic if the percentage change in quantity is less than the percentage change in price, elastic if it's greater, and unitary if changes are equal. Factors like substitutes, necessity, income spent, and storage affect elasticity.
Elasticity measures the responsiveness of quantity to price changes. It allows economists to compare markets without standardizing units. There are own price elasticities of demand and supply that measure responsiveness of quantity to the good's own price. Demand is more price sensitive when elasticity is further from zero. Total expenditures can increase or decrease with price changes depending on elasticity. Other elasticities include cross price and income elasticities.
This document discusses the price elasticity of supply. It defines price elasticity of supply as the relationship between a change in quantity supplied and a change in price. It also provides the formula for calculating price elasticity of supply. Supply can be elastic, unit elastic, or inelastic depending on the coefficient. The document lists factors that affect price elasticity of supply, such as factor substitution possibilities, spare production capacity, stock levels, and time frames. Short-term supply may be more inelastic due to fixed factors, while long-run supply is more elastic.
Elasticity measures the responsiveness of quantity demanded to a change in price. It is calculated by finding the percentage changes in quantity and price and taking the ratio. An elasticity over 1 means demand is elastic and sensitive to price, under 1 means inelastic demand not sensitive to price, and exactly 1 means unitary elastic demand where quantity and price move proportionately. Demand for necessities tends to be inelastic while luxuries have elastic demand more impacted by price changes.
This document discusses the concept of elasticity in economics, including price elasticity of demand, price elasticity of supply, cross elasticity, and income elasticity. It provides definitions and formulas for calculating each type of elasticity. Examples are given to illustrate how to compute elasticity coefficients and determine whether two products are substitutes, complements, or unrelated based on cross elasticity. The document also examines the total revenue test and how total revenue moves in relation to price changes depending on whether demand is elastic or inelastic.
The document discusses different types of elasticity of demand, including:
1) Income elasticity of demand measures the response of quantity demanded to a change in income. Necessities have income inelastic demand while luxuries have income elastic demand.
2) Types of income elasticity include zero, negative, unitary, greater than one, and less than one.
3) Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. It can be positive, negative, or zero.
05 price elasticity of demand and supplyNepDevWiki
Price elasticity of demand measures how responsive quantity demanded is to price changes. It is calculated as the percentage change in quantity divided by the percentage change in price. Elastic demand occurs when this is above 1, inelastic below 1, and unitary elastic at 1. Perfectly elastic demand is horizontal, while perfectly inelastic is vertical. Factors like substitutes, budget share, and adjustment time influence elasticity. Income elasticity measures responsiveness to income changes, while cross elasticity measures responsiveness between related goods. Price elasticity of supply measures responsiveness of quantity supplied to price. Tax incidence depends on demand elasticity, with inelastic demand leading to consumers paying more of the tax.
This document discusses the concept of elasticity of demand in economics. It defines elasticity of demand as the percentage change in quantity demanded divided by the percentage change in a determinant of demand. The key determinants discussed are price, income, and the price of related goods. The document outlines different types of price elasticity including perfectly elastic, perfectly inelastic, relatively elastic, and relatively inelastic. It also discusses methods for measuring price elasticity including percentage, point, and arc methods. Finally, it covers income elasticity and cross elasticity as well as factors that influence elasticity and applications of elasticity concepts.
Copy of Theory of demand and Elasticity (2).pptxCeddiaTaylor1
The document discusses concepts related to demand, including consumer surplus, demand curves, price elasticity of demand, and income elasticity of demand. It provides definitions and formulas for calculating elasticities. Consumer surplus is defined as the benefit consumers receive above the market price they pay. Demand curves can be used to graphically represent consumer surplus. Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. Income elasticity of demand measures the responsiveness of quantity demanded to changes in consumer income. The document also discusses factors that determine elasticities and the importance and uses of measuring elasticities.
The document is a multiple choice quiz about demand, supply and markets. It contains 37 questions that test understanding of key concepts like demand curves, shifts in demand and supply, equilibrium price and quantity, surpluses and shortages. The questions cover how changes in factors like price, income, technology, taxes and the number of producers/consumers can cause the demand and supply curves to shift, resulting in changes to equilibrium price and quantity in the market.
Exam1. Economics is aa. social science that studies g.docxSANSKAR20
Exam
1. Economics is a:
a. social science that studies goods with no alternative uses.
b. natural science that studies goods with no alternative uses.
c. social science concerned chiefly with how people choose among alternatives.
d. social science concerned chiefly with reasons why society has unlimited resources.
2. Scarcity exists when:
a. a choice must be made among two or more alternatives.
b. we face the notion of "all other things unchanged."
c. countries and people find themselves facing poverty.
d. the notions of normative economics come into play.
3. A free good is:
a. also a scarce good.
b. a relatively abundant good.
c. a good with no opportunity cost.
d. a good with relatively low opportunity cost.
4. Suppose that voters in your community pass a one-cent sales tax increase to fund education, knowing full well they will have to forgo other goods they typically consume. This primarily addresses the economic question of:
a. How will each good be produced?
b. For whom shall the goods be produced?
c. Why will the resources be used to produce goods?
d. What goods and services should a society produce?
5. A factor of production that has been produced for use in the production of other goods and services is:
a. labor.
b. money.
c. capital.
d. natural resources.
6. The textbook classifies technology as _______ and entrepreneurs as _______ .
a. knowledge; persons who seek profit by finding new ways to organize factors of production
b. capital; labor
c. labor skills; capital
d. a factor of production; a factor of production
7. The production possibilities curve represents the fact that:
a. the economy will automatically end up at full employment.
b. an economy's productive capacity increases proportionally with its population.
c. if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.
d. economic production possibilities have no limit.
8. An economy is said to have a comparative advantage in producing a particular good if it:
a. can produce more of all goods than another economy.
b. can produce less of all goods than another economy.
c. has the highest cost for producing that good.
d. has the lowest cost for producing that good.
9. A negative relationship between the quantity demanded and price is called the law of ______.
a. demand
b. diminishing marginal returns
c. market clearing
d. supply
10. If people demand more of product A when the price of B falls, then A and B are:
a. not related.
b. substitutes.
c. complements.
d. inferior.
11. The primary difference between a change in demand and a change in the quantity demanded is:
a. a change in demand is a movement along the demand curve, and a change in quantity demanded is a shift in the demand curve.
b. a change in quantity demanded is a movement along the demand curve, and a change in demand is a shift in the demand curve.
c. both a change i ...
MCQs of Elasticity of Demand and SupplyEjaz Dilshad
This document contains 35 multiple choice questions related to concepts in microeconomics including:
- Price elasticity of demand and supply
- Determinants and shifts of demand and supply curves
- Effects of price floors, price ceilings, and taxes
- Characteristics and definitions of normal goods, inferior goods, substitutes and complements
- Measurement and interpretation of elasticity coefficients
Elasticity measures how responsive buyers and sellers are to changes in market conditions like price and income. Price elasticity of demand is calculated as the percentage change in quantity demanded over the percentage change in price. Demand is more elastic if there are substitutes, if the good is a luxury, or over a longer time period. Supply is also elastic over the long run as producers can adjust production. The discovery of a more productive wheat variety would shift the supply curve right, lowering the price and total farmer revenue if demand is inelastic.
The document discusses various types of elasticity, including price elasticity of demand, price elasticity of supply, income elasticity of demand, and cross elasticity. It provides examples of how to calculate elasticity coefficients from changes in price and quantity. Specifically, it examines how price elasticity indicates whether a change in price will increase or decrease total revenue, depending on whether demand is elastic, inelastic, or unit elastic. The document also discusses how cross elasticity is positive for substitute goods and negative for complementary goods.
Here are the key effects of the $30 per room tax on buyers in the hotel market:
- The demand curve shifts left by $30, since buyers must now pay $30 more per room. This shifts D to D'.
- Equilibrium quantity falls from 100 rooms to 80 rooms, as the higher price reduces Q demanded.
- Price paid by buyers rises from $100 to $130 per room, as they must now pay the $30 tax on top of the original price.
- Price received by sellers falls from $100 to $100 - $30 = $70 per room, as they receive $30 less due to the tax.
- The incidence of the tax falls mostly on buyers,
This chapter discusses elasticity, specifically price elasticity of demand and its measurement. It defines price elasticity of demand as the percentage change in quantity demanded divided by the percentage change in price. Demand is elastic if its price elasticity is more than 1, inelastic if less than 1, and unit elastic if equal to 1. The chapter explores factors that determine a good's price elasticity, such as availability of substitutes, necessity vs luxury, and time period. It also examines the relationship between price elasticity and total revenue, finding that cutting price increases total revenue if demand is elastic but decreases it if inelastic.
Price elasticity of demand measures how responsive the quantity demanded of a good is to changes in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Demand is elastic if elasticity is greater than 1, inelastic if less than 1, and unitary if equal to 1. Knowledge of elasticity helps sellers determine how changes in price will affect total revenue, which increases for elastic demand when price decreases but decreases for inelastic demand. Determinants of elasticity include availability of substitutes, whether a good is a necessity or luxury, budget share of the good, and time period considered. Elasticity concepts are also important for understanding tax incidence between buyers and sellers.
This document provides an overview of elasticity of demand from Team -3. It includes:
1. An introduction to elasticity and definitions of elastic and inelastic demand. Elastic demand means a small price change leads to a large quantity change, while inelastic means a large price change leads to a small quantity change.
2. The three main types of elasticity - price elasticity, income elasticity, and cross elasticity. Price elasticity measures responsiveness to price changes. Income elasticity measures responsiveness to income changes. Cross elasticity measures responsiveness between related goods.
3. Factors that determine price elasticity, like nature of the good, substitutes, proportion of income spent.
Assignment Five ECON 503 Name_________________________________.docxssuser562afc1
Assignment Five ECON 503 Name:_________________________________
End of Chapter Problems
Chapter 12-(1,2,4,5,7,8,18) Chapter 13 (1,2,5,14,15,17)
Vocabulary
complement
Good used together.
complementors
Firms that produce complementary products.
countercyclical goods/inferior goods
Good for which sales vary inversely with income.
cross elasticity of demand
Percentage change in quantity demanded of one item divided by percentage change in price of a different item.
cyclical goods/normal goods
Good for which sales vary with income.
elastic
Percentage change in quantity exceeds percentage change in price.
income elasticity of demand
Percentage change in quantity demanded divided by percentage change income.
inelastic
Percentage change in quantity is less than percentage change in price.
price elasticity of demand
Percentage change in quantity demanded divided by percentage change in price.
substitutes
Items that can be used in place of each other.
unit-elastic
Percentage change in quantity equals percentage change in price.
average total cost (ATC)
Cost per unit of output.
constant returns to scale
The relationship between per unit costs are the size or scale of the firm.
diminishing marginal returns
Combining increasing quantities of variable resources with fixed resource causes marginal output to rise at diminishing rates.
diseconomies of scale
The relationship between per unit costs and the size or scale of the firm.
economies of scale
Cost per unit of output declines as output increases.
economies of scope
Cost per unit of output declines as more different products are produced.
experience curve
Declining costs resulting from learning and gaining experience.
long run or planning period
Period of time just long enough that everything is variable.
Marginal Cost (MC)
Change in cost divided by change in output.
operating leverage
Ratio of fixed costs to variable costs.
short run or operating period
Period of time just short enough that at least one resource is fixed.
cartel
Individual firms combine to act as a monopolist.
contribution margin per unit
Ratio of total fixed costs to difference between price and average variable cost.
determinants of demand
Factors that affect demand other than own price.
ECON 503 Week Five Practice Problems
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. Elasticity is
a.
a measure of how much buyers and sellers respond to changes in market conditions.
b.
the study of how the allocation of resources affects economic well-being.
c.
the maximum amount that a buyer will pay for a good.
d.
the value of everything a seller must give up to produce a good.
____ 2. If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?
a.
immediately after the price increase
b.
one month after the price increase
c.
three months after the price increase
d.
one year after the price increase
____ 3. Economists compute the price ...
The document discusses various concepts related to elasticity, including:
- Price elasticity of demand measures the responsiveness of quantity demanded to price changes. Inelastic demand means a small change in quantity despite a large price change.
- Determinants of elasticity include the availability of substitutes, the time period considered, and whether a product is a necessity or luxury.
- Elastic supply means suppliers can quickly adjust quantity supplied in response to price changes. Inelastic supply means difficulty changing quantity supplied despite price fluctuations.
Chapter. 5 elasticity by Mankiw Economics .pdfprottoy21306011
Elasticity allows for more precise analysis of supply and demand. It measures how buyers and sellers respond to changes in market conditions. The document discusses the price elasticity of demand and supply, as well as the determinants and calculations of elasticity. It also covers applications of elasticity, such as how a new wheat hybrid could impact wheat farmers through shifts in the supply curve.
This document discusses price elasticity of demand, which measures the responsiveness of quantity demanded to changes in price. It defines elastic and inelastic demand, and explains how to calculate price elasticity using the percentage change in quantity demanded and price. Factors that impact elasticity are also examined, such as availability of substitutes, whether a good is a necessity, and how long it takes for consumers to adjust to price changes. Price elasticity is important for businesses to understand how changes in price may affect total revenue.
This document discusses price elasticity of demand, which measures the responsiveness of quantity demanded to changes in price. It defines elastic and inelastic demand, and explains how to calculate price elasticity using the percentage change in quantity demanded and price. Factors that impact elasticity are also examined, such as availability of substitutes, whether a good is a necessity, and how long it takes for consumers to adjust to price changes. Price elasticity is important for businesses to understand how changes in price may affect total revenue.
This document discusses price elasticity of demand, which measures the responsiveness of quantity demanded to changes in price. It defines elastic and inelastic demand, and explains how to calculate price elasticity using the percentage change in quantity demanded and price. Factors that impact elasticity are also examined, such as availability of substitutes, whether a good is a necessity, and how long it takes for consumers to adjust to price changes. Price elasticity is important for businesses to understand how changes in price may affect total revenue.
This document provides a multiple choice tutorial on consumer choice and demand. It includes 36 multiple choice questions that cover topics like the substitution effect, normal and inferior goods, utility, marginal utility, total utility, demand curves, consumer surplus, elasticity, and the components of the cost of consumption. The questions are designed to teach about key economic concepts related to consumer behavior and how consumers maximize their utility subject to budget constraints.
This document discusses price elasticity of demand and income elasticity of demand. It defines price elasticity of demand as a measure of responsiveness of demand to changes in price. It then describes different types of price elasticity including perfectly inelastic (E=0), perfectly elastic (E=∞), inelastic (E<1), elastic (E>1), and unit elasticity (E=1). Methods for measuring price elasticity such as percentage change, total revenue, and geometric are also outlined. Factors that influence price elasticity including availability of substitutes, time horizon, proportion of income spent, necessity of good, and competitors' prices are identified. Income elasticity of demand is defined as the relationship between
This document contains a 45 question quiz on concepts in economics including:
- The father of economics is Adam Smith.
- Economics can be considered both an art and a science.
- The terms microeconomics and macroeconomics were introduced by economists in the early 20th century.
- Macroeconomics deals with economic aggregates like GDP, while managerial economics focuses on problems facing individual firms.
- Demand is defined as the relationship between the quantity demanded of a good and its price when income and other factors are held fixed.
This lesson on price elasticity of demand contains an explanation of elasticity, how to solve for both arc and point price elasticity of demand, its relation to total revenue, and the factors that influence the elasticity of demand for a product or service.
Pakistan's exports to and imports from India from 2001-2010 are presented. Pakistan's top exports to India were edible fruit, nuts, oils, and organic chemicals. Its top imports from India were sugar, cotton, manmade filaments, and organic chemicals. While geographical proximity and cultural affinity could support more trade, current levels remain low due to sensitive item restrictions, high trade costs, and a trust deficit between the countries. Further trade liberalization and diplomatic efforts are recommended to expand bilateral trade.
Capitalism generates significant inequalities in income and wealth which reduce overall social welfare. While private ownership and market forces lead to economic growth, capitalism also produces goods and services that are harmful or do not meet real social needs. The system is also unstable and prone to economic crises. Some failed capitalist states have extreme poverty, while others require costly bailouts. Islam prohibits practices like usury and monopoly that are necessary for capitalism to grow. In conclusion, capitalism has become a curse by prioritizing profits over people through exploitation, unsafe products, pollution, and corruption.
Poverty in Pakistan is a growing concern, as nearly one-quarter of the population was classified as poor as of 2006, though this declined to 17.2% by 2008. Some key causes of poverty in Pakistan discussed in the document include lack of education and job skills, materialism weakening social bonds and support systems, division of agricultural land reducing farm viability, and dishonest and irresponsible behaviors undermining the economy. Poverty carries significant health, educational, and social risks, especially for children and homeless families. The document argues that poverty will not end without economic and political reforms that promote equality, transparency, environmental sustainability, and basic human rights for all people worldwide.
This document outlines plans for an apricot juice business located in Gilgit, Pakistan. It provides details on the business locations, projected investment costs totaling $200,000, commercially important apricot varieties, categories of apricot juice, and the organizational structure. It also summarizes the health benefits of apricot juice, including aiding immune function and reducing fever. Risks to the business like seasonal demand and perishability are discussed along with contingency plans.
1) The document discusses factors that determine economic output, including inputs like capital and labor, and their productivity. It develops a production function model.
2) A production function relates the quantity of output to quantities of inputs like capital and labor. It has properties like being upward sloping and becoming flatter at higher input levels.
3) The document then examines labor demand and supply to determine equilibrium employment and output in an economy.
This document provides details about a new fish farm business called New Khan Fish Farm located in Sawat River, KPK. It includes information about the managers, a description of the business selling seafood and fish, an request for initial financing of 3 million rupees. The business plans to offer unique services like the first aquarium in the valley and a small hotel serving only fish. It provides financial projections of expected monthly profits of 400,000 rupees and expenditures of 4 million rupees. An appendix describes a public survey that found 73% of people appreciated the idea of the business.
The document discusses consumer preferences and indifference curves. It explains that indifference curves represent combinations of goods that consumers are indifferent between. They slope downward, as consumers always prefer more of both goods. The slope of the indifference curve represents the marginal rate of substitution, or how much of one good a consumer is willing to give up to obtain more of another good. Looking at indifference curves allows analyzing how consumers make choices when faced with budget constraints.
This document summarizes characteristics of Brazil's energy sector including its large population, heavy reliance on hydroelectric power, and lower per capita energy consumption compared to OECD countries. It also describes biomass uses in Brazil, the rural electrification program, regional inequities in electricity consumption, and early government initiatives on climate change impacts. The document concludes with a case study on a biodiesel project in Amazonas state that aims to provide renewable energy to isolated communities and generate jobs through vegetable oil and soap production.
This document discusses the differences between direct and indirect speech. It notes that when changing from direct to indirect speech, pronouns may change, tenses usually change, and contextual details like temporal words and locations are adjusted. Questions require different transformations than statements. Indirect speech uses conjunctions like "that" and "to" and maintains the meaning while adjusting grammar based on the rules discussed.
The document defines backbiting as saying something about another person that they dislike, whether it is true or not. Backbiting has negative social effects as it destroys respect and love for others. It is prohibited in Islam according to both the Quran and hadith. The Prophet described serious punishments for backbiting, including that it is a worse sin than adultery. The document provides ways to resist backbiting such as guarding one's tongue and opposing backbiting when one hears it.
Fashion has historically been centered in France from the 1600s to 1900s, with Paris as the fashion capital. Industrialization and globalization in the 1900s expanded the demand for fashion beyond the wealthy to a growing middle class in other cities like Milan and New York. The fashion industry progresses through stages of introduction, growth, maturity, and decline as styles and trends become popular and then fade over time, with fashion fulfilling important psychological needs of identity and cultural expression as well as social functions of affiliation and conforming to standards.
Plate tectonics involves the large plates that make up the Earth's crust moving and interacting in different ways. The movement of these plates is controlled by mountains, which act as "pegs" to keep the plates from moving under them, as referenced in the Quran. There are three main types of plate movements: convergence, divergence, and sliding past one another, and these different movements result in geological features like mountain ranges and can cause natural disasters.
Gilgit-Baltistan has a total area of 72,496 square kilometers and a population of around 2 million people. It is bordered by Azad Kashmir, Khyber Pakhtunkhwa, the Wakhan Corridor of Afghanistan, Xinjiang province of China, and the Indian-administered state of Jammu and Kashmir. Before the partition of India in 1947, the region was ruled by the Maharaja of Jammu and Kashmir, but the people decided to join Pakistan after independence. Gilgit-Baltistan has a diverse geography, culture and history as a strategically important region located in the Karakoram mountains.
The document discusses various types of foreign finance, investment, and aid that consist of private direct and portfolio investment, public and private development assistance, and remittances from international migrants. It provides details on foreign direct investment from multinational corporations, portfolio investment through foreign purchases of bonds and shares, and public development assistance in the form of bilateral and multilateral aid. The benefits of these financial flows include filling saving-investment gaps, introducing new skills and technology, and reducing poverty. However, disadvantages include the potential for stifling local competition and crowding out of investment.
2. 1. In market economies, most production and
consumption decisions are guided by
a. government decree
b. foreign countries (imports and exports)
c. monopolists’ desires to maximize profits
d. individual choice under the price system
D. A business will only sell what consumers
want to buy.
2
3. 2. In general, “elasticity” can measure
a. whether a price increase causes quantity
demanded to increase or decrease
b. the strength of an economy’s tendency to
recover from recession
c. the responsiveness of decision makers to
economic changes in prices
C. You can think of elasticity as a rubber
band. Elastic means it can stretch, the easier
it stretches the more elastic the rubber band.
When price changes for a good and the
quantity demanded changes a lot, the
demand curve is very elastic. When price
changes and the quantity demanded changes
a little, the demand curve is inelastic.
3
4. 3. More “elastic” means
a. less desirable
b. less desirable
c. less responsive
d. more responsive
D. For example, in a perfectly competitive
market, if a firm (let’s say a farmer) charges a
price higher than the market price its sales
will drop to zero. Why would anyone buy from
a higher priced firm if they can buy exactly
the same thing from a multitude of other
firms? In this case the responsiveness is
absolute, the demand curve is perfectly elastic.
4
5. 4. Price elasticity of demand is calculated as
a. the percentage change in quantity
demanded divided by the percentage
change in price
b. the percentage change in price divided by
the percentage change in quantity
demanded
c. the absolute change in quantity demanded
divided by the absolute change in price
A. A percent change is measured by the
difference between the two numbers divided
by the original number. For example, what is
the percent increase from 3 to 5 units? 2
divided by 3. What is the percent decrease
from 5 to 3? 2 divided by 5. 5
6. 5. Without making an adjustment such as
finding the absolute values of the percentage
changes, the price elasticity of demand would
be negative because
a. price and demand are directly related
b. price and demand are inversely related
c. price and quantity demanded are inversely
related
C. As the price of a good increases, the quantity
demanded decreases and vice versa. This may
not always be true, but in this course we
assume that it is always true. Because the
relationship is always negative, we normally
concentrate on the absolute values of numbers.
6
7. 6. In calculating price elasticity of demand, we
use average price and average quantity as our
base value because
a. it reduces the complexity of the formula
and makes the calculation easier
b. the resulting measure is then not
influenced by whether price is rising or
falling
c. we would get the same answer if we use the
initial price and quantity
B. Instead of measuring elasticity as the
difference between two numbers divided by
the original number, we take the difference
between the two numbers divided by the
average of the two numbers. 7
8. 7. Price elasticity of demand is not influenced by
a. the number of substitutes available
b. the proportion of the consumer’s budget
spent on the good
c. the length of the time period under
consideration
d. the units of measurement used for price or
for quantity demanded
D. Whether we are dealing in American
dollars or European Euros or whether we are
dealing with cars or shoes, the formula for
measuring elasticity is the same.
8
9. 8. Edith buys 9 magazines per week when the
price is $3. She buys 11 magazines per week
when their price is $2. Edith’s price elasticity
of demand is
a. -1/2 = -0.5
b. -2/3 = -0.667
c. -1.0
A. The difference between 9 and 11 units is 2
and the average quantity is 10. The
difference between $3 and $2 is 1 and the
average price is 2.5.
2/10 / 1/2.5 = 2/10 x 2.5/1 = 5/10 = 1/2 = .5.
* most authors drop the negative sign,
McEachern does not in his book.
9
10. 9. Matt bought 6 CDs last month, when the
price was $14. This month, when the price of
CDs increased to $16, Matt bought only 4
CDs. Matt’s price elasticity of demand is
a. -1/3 = -0.333
b. -3/7 = -0.429
c. -7/3 = -2.333
d. -3
D. The difference between the quantities
demanded is 2 and the average quantity is 5.
The difference between the prices is 2 and the
average price is 15. So:
2/5 divided by 2/15 = 2/5 x 15/2 = 30/10 = 3
* Again, McEachern uses the negative sign.
10
11. 10. If a 5% increase in price leads to an 8%
decrease in quantity demanded, demand is
a. perfectly elastic
b. elastic
c. unit elastic
d. inelastic
B. When price increases and a sellers total
revenue increases, the demand is inelastic.
When the price increases and the sellers total
revenue decreases, the demand is elastic. In
this case total revenue will decrease because
the quantity demanded is decreasing at a
greater percentage than the increase in price.
11
12. 11. If price elasticity of demand is -0.5,
a. a 1% decrease in quantity demanded leads
to a 0.5% decrease in price
b. a 1% decrease in price leads to a 0.5%
increase in quantity demanded
c. a 50% decrease in price leads to a 1%
increase in quantity demanded
d. demand is elastic
B. The percent change in quantity divided by
the percent change in price is equal to the
price elasticity of demand. So in this case, the
percent change in quantity is equal to .5 and
the percent change in price is 1, so .5 / 1 = .5
12
13. 12. Unit elastic demand occurs when
a. a one-unit increase in price leads to a one-
unit decrease in quantity demanded
b. a 1% increase in price leads to a one-unit
decrease in quantity demanded
c. price elasticity of demand is positive
d. price elasticity of demand is exactly -1
D. The price elasticity of demand is unitary
elastic when the percent change in quantity
demanded divided by the percent change in
price is equal to one.
13
14. 13. Knowledge of price elasticity of demand
a. is of no use to producers
b. tells producers what will happen to total
profit if they change product price
c. tells producers what will happen to
quantity supplied if they change product
price
d. tells producers what will happen to total
revenue if they change product price
D. Let’s say you own a business. Should you
raise your price? What will happen to your
total revenue if you do so? If you know the
price elasticity of demand for your product
you will know the answer before the fact.
14
15. 14. In calculating price elasticity of demand,
which of the following is assumed to be held
constant?
a. the price of the product itself
b. the quantity demanded of the product
c. total revenue received from the sale of the
product
d. the prices of all other products
D. Anytime we change something and want to
know the result we always assume that
everything else stays the same. The Latin
term for this assumption is ceteris paribus.
15
16. 15. Total revenue is defined as
a. the net profit after the opportunity cost of
all resources used has been deducted
b. the change in quantity sold divided by the
change in price
c. price elasticity of demand times quantity
sold
d. price times quantity sold
D. If you own a business and the price for your
product is $2 and you sell 3 units, your total
revenue is $6.
16
17. 16. If a firm raises the price of its product, its
total revenue will
a. always increase
b. increase only if demand is price inelastic
c. increase only if demand is price elastic
d. remain constant, regardless of price
elasticity of demand
B. In this case total revenue increases because
the percent change in quantity sold is more
than the percent change in price.
17
18. 17. If a price reduction leads to greater total
revenue, demand is
a. perfectly inelastic
b. inelastic
c. unit elastic
d. elastic
D. In this example price is decreasing instead
of increasing. If a firm lowers its price and its
total revenue increases as a result, this means
that the percent change in quantity
demanded is greater than the percent change
in the price. Because the quantity demanded
is changing more than the change in price,
the demand curve is elastic.
18
19. 18. John spends exactly the same dollar amount
of candy bars each week, regardless of their
price. John’s demand curve for candy bars is
a. upward-sloping
b. backward-bending
c. perfectly inelastic
d. unit elastic
C. A perfectly inelastic demand curve is
perfectly vertical. This means that a change
in price has no effect on the quantity
demanded.
19
20. 19. When demand is price inelastic, total
revenue is
a. directly related to quantity demanded
b. inversely related to quantity demanded
c. directly related to price
d. not related to either price or quantity
demanded
A. A direct relationship means that when there
is a change in one variable the other variable
changes in the same direction. For example,
if one goes up the other will increase as well.
In this case, an increase in price leads to an
increase in total revenue, which is the
definition of an inelastic demand curve.
20
21. 20. Along a linear, downward-sloping demand
curve, price elasticity of demand
a. is impossible to calculate
b. is constant and is equal to the slope
c. is constant and is equal to the inverse of the
slope
d. becomes more elastic as price increases
D. Linear means a straight line. Consumers
will have a greater response to a change in
price at higher prices than they will at lower
prices.
21
22. 21. A linear, downward-sloping demand curve
has
a. constant slope and constant elasticity
b. constant slope and varying elasticity
c. varying slope and constant elasticity
d. varying slope and varying elasticity
B. The slope all along a straight line is the
same. This is what makes a straight line a
straight line. Elasticity along this straight line
demand curve varies. The reason is the same
as explained in question 20.
22
23. 22. When the demand curve is linear with the
typical downward slope, a firm can receive
the greatest total revenue by
a. charging the highest price possible
b. selling the most output possible
c. producing where demand is inelastic
d. producing where demand is unit elastic
D. A profit maximizing firm will continue to
raise its price if the higher price leads to an
increase in revenue, ceteris paribus. So at
what point will it stop raising its price? At the
point where the percent change in quantity is
equal to the percent change in price.
23
24. 23. A perfectly elastic demand curve is
a. a vertical straight line
b. a horizontal straight line
c. a downward-sloping straight line
d. an upward-sloping straight line
B. A perfectly horizontal demand curve
shows that any increase in price beyond the
price at which the demand curve is at will
lead to zero sales.
24
25. 24. If a firm whose product faces a perfectly
elastic demand curve raises its price,
a. it will sell exactly the same amount of
output as it did at the lower price
b. it will lose some, but not all, of its sales
c. its sales will decrease to zero
d. its sales will increase
C. This is the case for a farmer who is a part of
a perfectly competitive industry. Because
there are so many farmers at the market
selling identical products they become price
takers; they must take whatever price the
market determines. Any price above this
price will result in zero sales. 25
26. 25. A perfectly inelastic demand curve is
a. a vertical straight line
b. a horizontal straight line
c. a downward-sloping straight line
d. an upward-sloping straight line
A. The vertical line is at the quantity that
will be demanded regardless of the
product’s price.
26
27. 26. If a firm facing a perfectly inelastic demand
curve raises its price,
a. it will still sell exactly the same amount of
output as it did at the lower price
b. it will lose some, but not all, of its sales
c. its sales will decrease to zero
d. its sales will increase
A. In this case, a change in price has no effect
on the quantity demanded.
27
28. 27. The more broadly a good is defined
a. the more substitutes it has, so its demand
will be more elastic
b. the less substitutes it has, so its demand
will be more elastic
c. the more substitutes it has, so its demand
will be less elastic
d. the less substitutes it has, so its demand
will be less elastic
D. Ease of substitution is a variable that
determines a product’s elasticity. The easier
the substitution, the more elastic the demand
curve. The more broadly defined the good,
the more difficult it is to find substitutes.
28
29. 28. Which of the following effects a product’s
price elasticity of demand?
a. ease or difficulty of substitution
b. the time factor
c. how much of a necessity the product is to
consumers
d. all of the above
D. The easier the substitution, the more elastic
the demand curve. The more time consumers
have to respond to a price change, the more
elastic the demand curve. The less the product
in question is a necessity, the more elastic is
the demand curve it faces in the market.
29
30. 29. Which of the following is likely to have the
most elastic demand?
a. beef steak
b. beef (including steak, ribs, burgers, etc.)
c. meat (including beef, pork, chicken, etc.)
d. protein foods (including meat, cheese, eggs,
etc.)
A. The more broad the market the less elastic
is the demand curve. Beef steak is a market
that is much less broad than beef, meat, and
protein foods.
30
31. 30. Advertising is related to price elasticity of
demand
a. in no way whatsoever
b. in that producers try to convince
consumers that their particular product is a
close substitute for virtually all other
products in the industry
c. in that producers try to convince
consumers that their particular product is
unique, with no close substitutes
C. Price elasticity of demand is a measure of
consumer’s responsiveness to a change in a
product’s price in the market. Advertising
can influence consumer’s responsiveness.
31
32. 31. Other things being equal, the price elasticity
of demand for a product will be more elastic
a. if spending on the item is a very large
proportion of the household’s budget
b. if spending on the item is a very small
proportion of the household’s budget
c. when the price of the product is very low
d. for a product with no close substitutes
A. The larger the price of a product is to a
consumer’s budget the more elastic is the
demand curve. For example, a ten percent
change in the price of a new car will have more
of an impact on decision making than a ten
percent change in the price of a box of salt.
32
33. 32. Price elasticity of demand and price
elasticity of supply are both influenced by
a. the availability of close substitutes for the
product
b. the proportion of the consumer’s budget
spent on the product
c. the length of the adjustment period
considered
C. In the early 1970’s OPEC greatly increased
the price of their oil. Because oil is a necessity
with few substitutes, we had no choice but to
pay the higher price. However, in time the
western world developed substitutes, found
alternative sources of oil, and took action
that led to a decline in demand for 33 imported
oil.
34. 33. Price elasticity of supply is calculated as
a. the unit change in quantity supplied caused
by a $1 change in price
b. the percent change in quantity supplied
caused by a 1% change in price
c. the dollar change in price caused by a one-
unit change in quantity supplied
d. the percent change in price caused by a
1% change in quantity supplied
D. When considering supply curves,
suppliers are interested in the relationship
between a change in price and a change in
the quantity supplied.
34
35. 34. When price increases from $45 to $55, the
quantity supplied increases from 20 units to
30 units. The price elasticity of supply is
a. 1/2 = 0.5
b. 1.0
c. 2.0
C. *We always use the arc elasticity of demand
and supply formula, that is, we use average
values. Also, the sign is always positive because
there is a direct relationship between the
change in price and the change in quantity
supplied.
The percent change in the quantity supplied is
10/25 and the percent change in price is 10/50.
So the price elasticity of supply is 10/25 divided
35
by 10/50 or 10/25 x 50/10 = 500/250 = 2.
36. 35. A perfectly elastic supply curve
a. has no relevance, since real-world supply
curves are never perfectly elastic
b. is a horizontal straight line
c. is a vertical straight line
d. is not a straight line
B. A perfectly elastic supply curve is perfectly
horizontal for the same reason that a
perfectly demand curve is perfectly
horizontal. In this case, a change in price will
have an infinite effect on the change in the
quantity supplied.
36
37. 36. Which of the following products would be
most likely to have a perfectly inelastic supply
curve?
a. wheat
b. cigarettes
c. economic textbooks
d. humidors used by President John F.
Kennedy
D. As price changes the suppliers of wheat,
cigarettes, and economic textbooks can
change the quantity supplied of these goods.
But with the humidors used by Kennedy, the
supply cannot be changed from what it is
because the quantity is fixed.
37
38. 37. The most important determinant of price
elasticity of supply is
a. price elasticity of demand
b. how rapidly costs increase when a firm
increases its output
c. whether the production process relies
heavily on capital or on labor
B. If the cost of supplying each additional unit
rises sharply as output expands, then a
higher price will elicit little increase in
quantity supplied, so supply will tend to be
inelastic. But if the additional cost rises
slowly as output expands, the lure of a higher
price will prompt a large increase in output
and the supply curve is very price38 elastic.
39. 38. Tax incidence refers to
a. who bears the burden of the tax
b. the principle of taxation being applied
c. the percent of a dollar of earned income
which a typical household in that country
pays in taxes
d. the percent of government spending which
is financed by taxes rather than by
borrowing or by printing money
A. If the government raises the sales tax
across the board, who is affected the most?
In this case, low income people will be
effected more than high income people.
39
40. 39. The burden of a sales tax
a. falls on consumers, who must pay the
entire tax
b. falls on producers, who must pay the entire
tax
c. is paid partly by consumers and partly by
producers, depending on price elasticity of
demand and price elasticity of supply
C. If a business can raise its price and its
revenue increases, it can readily pass the tax
increase on to the consumer. However, if a
business raises its price and its revenue
declines, it will end up paying most of the
increase in sales tax.
40
41. 40. Consumers pay a larger proportion of a
sales tax if
a. demand and supply are both more elastic
b. demand and supply are both less elastic
c. demand is more elastic and supply is less
elastic
d. demand is less elastic and supply is more
elastic
D. The less elastic is the demand curve, the less
effect there will be on the quantity demanded
as the price increases. The more elastic is the
supply curve for the good, the less the
increase in costs effects the quantity supplied.
41
42. 41. Governments tend to tax products
a. with inelastic demand, because it leads to
higher revenue
b. with elastic demand, because it leads to
higher revenue
c. with elastic demand, because it leads to
higher business profit
d. which they think are beneficial to society,
because taxes lead to greater production
A. This is because the higher price that results
from the higher tax will not effect greatly the
quantity demanded of the product.
42
43. 42. Economists distinguish between normal and
inferior goods using
a. price elasticity of demand
b. price elasticity of supply
c. income elasticity of demand
d. tax incidence
C. A normal good is one that consumers will
purchase more of as their incomes increase.
An inferior good is one that consumers will
buy less of as their incomes increase.
43
44. 43. An inferior good is defined as one for which
demand increases as
a. price decreases
b. price increases
c. income increases
d. income decreases
D. New cars are an example of a normal good
and used cars is an example of an inferior
good. As consumer’s income decreases they
will tend to purchase more used cars and
fewer new cars.
44
45. 44. Luxury goods are usually
a. price inelastic
b. income inelastic
c. income elastic
d. goods with negative income elasticity
C. A luxury good is one that consumers can
live without. So as the price of luxury goods
increase, there is a large effect on the
quantity demanded as consumers choose to
buy less of the good.
45
46. 45. Income elasticity of demand is important to
producers because it indicates
a. the probable decrease in sales when price is
raised
b. the probable increase in quantity supplied
when price is raised
c. how a firm’s sales react to movements of
the economy through the business cycle
d. how a firm’s total revenue changes in
response to a price increase
C. This question deals with income elasticity
of demand and not price elasticity of
demand. Movements in the economy effect
consumer’s incomes. 46
47. 46. Which of the following is not a cause of
special problems in U.S. agricultural
markets?
a. many factors which determine farm
production are beyond the farmer’s control
b. the demand for farm products tends to be
price inelastic
c. the demand for farm products tends to be
income elastic
C. How much consumers spend on food is not
effected much by a change in their income.
At least in America, if people’s income
increases, they will tend to buy more new
cars, but will spend about the same on food.
47
48. 47. A characteristic of many unregulated
agricultural markets is that
a. total farm revenue increases when there
are bumper (large) crops and decreases
when there are meager (small) crops
b. total farm revenue decreases when there
are bumper crops and it increases when
there are meager crops
c. total farm revenue increases when demand
decreases and decreases when demand
increases
B. The bumper crops lead to such low prices
that the farmer makes very little money. The
shortage leads to higher prices enabling the
farmer to make more money.
48
49. 48. Cross-price elasticity of demand is used to
determine whether
a. a product is an inferior or normal good
b. a product is a necessity or a luxury
c. two products are substitutes or
complements
d. price and total revenue are directly or
inversely related
C. When two products are related, a change in
the price of one will effect the demand for the
other. For example, steak and steak sauce are
related. As the price of steak changes, the
demand for steak sauce will change.
49
50. 49. Substitutes are defined as products with
a. positive cross-price elasticity of demand
b. negative cross-price elasticity of demand
c. positive income elasticity of demand
d. negative income elasticity of demand
A. Sherbet is a substitute for ice cream. As the
price of ice cream increases, consumers will
tend to buy more sherbet. The cross-price
elasticity of demand is positive, in this case,
because as the price of ice cream increases
there is a corresponding increase in the
demand for sherbet.
50
51. 50. Negative cross-price elasticity of demand
indicates that
a. the product is an inferior good
b. the product is a necessity
c. the product is a luxury
d. the two products are complements
D. Steak and steak sauce are complementary
goods because they tend to be used together. As
the price of steak increases (people will
therefore buy less steak) the demand for steak
sauce will decrease. The cross-price elasticity is
negative because the increase in price leads to a
decrease in the quantity demanded.
51
52. Price Demand
Last slide viewed
Quantity
Exhibit 18.1
52
53. 51. The price elasticity of demand in
Exhibit 18-1 is
a. unit elastic
b. somewhat elastic
c. perfectly elastic
d. perfectly inelastic
D. It is perfectly inelastic because a
change in price will have no effect
on the quantity demanded.
53
54. 52. What is the price elasticity of demand in
Exhibit 18-1 ?
a. 0
b. -1
c. negative infinity
d. 1
A. The price elasticity of demand is the
percent change in quantity divided by the
percent change in price. In this case there
is 0 change in the quantity demanded as
the price changes.
54
55. Price Last slide viewed
De
$40 ma
n d
$20
0
6 8 Quantity
Exhibit 18.2
55
56. 53. What is the price elasticity of demand
between $20 and $40 in Exhibit 18-2?
a. -1
b. -3/7
c. -2 1/3
d. -7
B. The percent change in quantity is 2/7 and
the percent change in price is 20/30 so the
price elasticity of demand is 2/7 x 30/20 =
60/140 = 6/14 = 3/7. *Remember, your
author uses the negative sign when referring
to elasticity of demand.
56
57. 54. What is the price elasticity of demand in the
segment of the demand curve below $40 and
above $20 in Exhibit 18-2?
a. elastic
b. inelastic
c. unit elastic
d. 0
B. It is inelastic because 3/7 is less than one.
An elasticity greater than one is elastic, a
value of one is unitary elastic, and a value of
less than one is inelastic.
57
58. 55. If a firm’s demand curve is illustrated in
Exhibit 18-2 and it is currently charging $20,
its total revenue will
a. remain unchanged, if it changes its price
slightly
b. increase, if it lowers its price substantially
c. increase, if it lowers its price slightly
d. increase, if it raises its price slightly
D. This is because the demand curve is price
inelastic, which means that the firm can raise
price and its total revenue will increase.
58
59. Price Last slide viewed
1
S
$40
S
$20
$10
Quantity
0
100 200
Exhibit 18.3
59
60. 56. What is the price elasticity of supply
between $10 and $20 on supply curve S in
Exhibit 18-3?
a. 0
b. infinity
c. 1
d. 2
C. Price elasticity of supply is the percent
change quantity divided by the percent
change in price. The percent change in
quantity is 100/150 and the percent change in
price is 10/15. So price elasticity of supply is
100/150 x 15/10 = 1500/1500 = 1
60
61. 57. What is the price elasticity of supply
between $20 and $40 on supply curve S 1 in
Exhibit 18-3?
a. 0
b. infinity
c. 1
d. 2
C. The percent change in quantity is 100/150
and the percent change in price is 20/30. So
the price elasticity of supply is 100/150 x
30/20 = 3000/3000 = 1
61
62. 58. Which supply curve tends to be more elastic
in Exhibit 18-3?
a. both S and S1 have the same elasticity
b. S is more elastic at lower prices, and S’ is
more elastic at higher prices
c. S
d. S1
A. Both have a price elasticity of one.
62