Economics Chapter on Elasticity of Demand
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Questions and Answers

What is the primary focus of the chapter according to the provided content?

  • Price Elasticity of Demand (correct)
  • Cross Elasticity of Demand
  • Total Expenditure Method
  • Income Elasticity of Demand

Which of the following best describes cross elasticity of demand?

  • Change in quantity demanded due to change in income
  • Change in quantity demanded due to change in the price of the same commodity
  • Change in quantity demanded due to change in consumer preferences
  • Change in quantity demanded due to change in the price of another commodity (correct)

What does a high price elasticity of demand indicate?

  • Demand significantly changes with price changes (correct)
  • Price changes do not affect total revenue
  • Demand is unresponsive to price changes
  • Consumer preference is wholly stable

According to the definition, what aspect does the price elasticity of demand measure?

<p>Responsiveness of quantity demanded to changes in own price (D)</p> Signup and view all the answers

Which method is NOT mentioned as a technique for measuring price elasticity of demand?

<p>Utilization Method (C)</p> Signup and view all the answers

What does elasticity of demand specifically measure in relation to quantity demanded?

<p>The degree to which quantity demanded changes due to variation in its determinants (D)</p> Signup and view all the answers

Which of the following methods is NOT used to measure price elasticity of demand?

<p>Consumer Preference Method (A)</p> Signup and view all the answers

If the price of a commodity increases by 30% and the quantity demanded decreases by 10%, what is the elasticity of demand?

<p>0.33 (C)</p> Signup and view all the answers

Which scenario illustrates inelastic demand?

<p>A 20% price increase resulting in a 15% decrease in quantity demanded (C)</p> Signup and view all the answers

What is the relationship described by the law of demand?

<p>Higher prices result in a decrease in quantity demanded (C)</p> Signup and view all the answers

In which situation does the elasticity of demand show greater than unitary elasticity?

<p>A price decrease leads to an increase in total expenditure. (A)</p> Signup and view all the answers

What does a situation of less than unitary elasticity indicate?

<p>Total expenditure decreases when the price decreases. (A)</p> Signup and view all the answers

What is the nature of the elasticity of demand in Situation A of Table 1?

<p>Unitary elasticity. (C)</p> Signup and view all the answers

Which of the following statements is correct regarding price elasticity of demand?

<p>An increase in price results in increased total expenditure for inelastic demand. (D)</p> Signup and view all the answers

Situations of greater than unitary elasticity imply which type of relationship between price and total expenditure?

<p>A decrease in price results in an increase in total expenditure. (C)</p> Signup and view all the answers

Flashcards

Price Elasticity of Demand

Measures how responsive quantity demanded is to a change in price.

Elasticity of Demand

How much quantity demanded changes in response to changes in price, income, or related goods.

Law of Demand

Price and quantity demanded move in opposite directions.

Price Elasticity of Demand Measurement

Quantifies how much demand changes when prices change.

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Demand Curve & Elasticity

Different demand curves show elasticities, e.g., very steep means inelastic.

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Income Elasticity of Demand

The percentage change in quantity demanded of a good divided by the percentage change in consumer income.

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Cross Elasticity of Demand

The percentage change in quantity demanded of a good divided by the percentage change in the price of a related good.

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Total Expenditure Method

A method to calculate price elasticity of demand by observing changes in total revenue. If total revenue increases with a price decrease, demand is elastic.

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Percentage-Change Method

A method to calculate price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price.

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Unitary Elasticity

When a price change doesn't alter total expenditure on the good. The change in quantity demanded perfectly offsets the price change.

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Elasticity Greater Than Unitary

Total expenditure increases when the price decreases, and decreases when the price increases. Demand is very sensitive to price changes.

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Elasticity Less Than Unitary

Total expenditure decreases when the price decreases, and increases when the price increases. Demand is relatively insensitive to price changes.

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How does total expenditure change with a price drop and elastic demand?

Total expenditure increases because the increase in quantity demanded outweighs the decrease in price.

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