Elasticity of Demand and Supply in Economics

What does elasticity measure in economics?

Responsiveness of one variable to a change in another variable

How is price elasticity of demand defined?

Responsiveness of quantity demanded to a change in price

In economics, what is said to be the case when demand is inelastic?

Quantity demanded does not change much when price changes

What does price elasticity of supply measure?

Responsiveness of quantity supplied to a price change Signup and view all the answers

When is supply said to be inelastic?

Quantity supplied does not change much when price changes Signup and view all the answers

What does cross-price elasticity of demand measure?

Responsiveness of quantity demanded of one good to a change in price of another good Signup and view all the answers

What happens to the price that businesses can charge when demand is inelastic?

They can charge higher prices without losing many customers. Signup and view all the answers

What is elasticity of demand a measure of?

The responsiveness of the quantity demanded to changes in price. Signup and view all the answers

Which type of goods tend to have inelastic demand?

Necessity goods Signup and view all the answers

What is a key determinant of the elasticity of demand?

The availability of substitutes Signup and view all the answers

What happens to the elasticity of demand when a good represents a small portion of consumers' income?

It becomes more inelastic Signup and view all the answers

Why do luxury goods often have elastic demand?

Because consumers can easily forgo them if the price rises Signup and view all the answers

Which factor primarily determines the ease of adjusting production levels in response to price changes?

Availability of inputs Signup and view all the answers

In which scenario is the supply likely to be more elastic?

In a competitive market with many producers Signup and view all the answers

How do government regulations impact the elasticity of supply?

By affecting production costs and incentives for producers Signup and view all the answers

How does technology influence the elasticity of supply?

By increasing the efficiency of production processes Signup and view all the answers

Which factor is NOT directly related to the elasticity of supply?

Consumer demand Signup and view all the answers

What type of market tends to have a more elastic supply?

Perfectly competitive market Signup and view all the answers

What factor can make demand less elastic in the short run?

The inability to adjust consumption patterns Signup and view all the answers

How can brand loyalty impact elasticity of demand?

Decreasing elasticity due to willingness to pay higher prices Signup and view all the answers

How does the definition of the market affect the elasticity of demand?

Demand is more elastic in broader markets as consumers have more options Signup and view all the answers

What role does the perceived value of a product play in its elasticity?

High perceived value decreases elasticity as consumers pay more for perceived benefits Signup and view all the answers

What makes the supply of a product less elastic in the short run?

Producers lack flexibility in adjusting production Signup and view all the answers

How does time horizon affect elasticity of supply?

Elasticity increases in the long run because of increased production flexibility Signup and view all the answers

How are two goods classified if the quantity demanded of one good increases when the price of another good increases?

Substitutes Signup and view all the answers

What does it mean if the quantity demanded of a good decreases when consumer income increases?

The good is inferior Signup and view all the answers

What is the significance of understanding elasticity for policymakers who seek to increase tax revenue by raising taxes on a product or service?

Understanding elasticity helps policymakers anticipate consumer response to increased taxes Signup and view all the answers

If demand is elastic, what should businesses do in order to avoid losing customers?

Decrease prices Signup and view all the answers

What does it mean when the quantity demanded of a good increases significantly when consumer income increases?

The good is a normal good Signup and view all the answers

What can businesses learn from understanding elasticity of demand for their products or services?

Elasticity of demand can inform pricing strategies Signup and view all the answers