Elasticity of Demand in Microeconomics
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Questions and Answers

What is the quantity demanded at a price above $4 in a perfectly elastic demand curve?

  • 100
  • Any quantity
  • Zero (correct)
  • Infinite
  • What is the formula to compute total revenue?

  • TR = P x Q (correct)
  • TR = P + Q
  • TR = P / Q
  • TR = P - Q
  • What happens to total revenue when there is an increase in price in an inelastic demand curve?

  • Total revenue decreases
  • Total revenue increases (correct)
  • Total revenue becomes zero
  • Total revenue remains the same
  • What is the characteristic of a perfectly elastic demand curve?

    <p>Even a small increase in price leads to an infinite decrease in quantity demanded</p> Signup and view all the answers

    What happens to quantity demanded when there is a 67% decrease in quantity demanded?

    <p>The quantity demanded decreases by 33%</p> Signup and view all the answers

    What happens to total revenue when price increases in an inelastic demand market?

    <p>Total revenue increases</p> Signup and view all the answers

    At exactly $4, what is the behavior of consumers in a perfectly elastic demand curve?

    <p>They will buy any quantity</p> Signup and view all the answers

    What is the initial total revenue in the given figure?

    <p>$100</p> Signup and view all the answers

    What happens to quantity demanded when price increases in an elastic demand market?

    <p>It decreases more than proportionately</p> Signup and view all the answers

    What is the relationship between price and total revenue in an elastic demand market?

    <p>An increase in price leads to a decrease in total revenue</p> Signup and view all the answers

    What can be inferred about the demand curve in the given figure?

    <p>It is inelastic</p> Signup and view all the answers

    What happens to the quantity demanded when the price increases from $1 to $3 in the given figure?

    <p>It decreases from 100 to 80</p> Signup and view all the answers

    What is the result of an increase in price from $4 to $5 on total revenue in a market with elastic demand?

    <p>A decrease in total revenue from $200 to $100</p> Signup and view all the answers

    What is the formula for computing income elasticity of demand?

    <p>Percentage change in quantity demanded divided by percentage change in income</p> Signup and view all the answers

    What is the characteristic of a market with elastic demand?

    <p>A small change in price leads to a large change in quantity demanded</p> Signup and view all the answers

    What does the income elasticity of demand measure?

    <p>The percentage change in quantity demanded resulting from a percentage change in income</p> Signup and view all the answers

    What is true about the quantity demanded of inferior goods?

    <p>It decreases when income increases</p> Signup and view all the answers

    What happens to the quantity demanded when the price increases in a market with elastic demand?

    <p>It decreases</p> Signup and view all the answers

    What is an example of a normal good?

    <p>Food</p> Signup and view all the answers

    What is the author's main purpose in discussing the concept of elasticity of demand?

    <p>To show how changes in price affect the quantity demanded</p> Signup and view all the answers

    What is the effect of an increase in consumers' income on the quantity demanded of a good?

    <p>The quantity demanded increases</p> Signup and view all the answers

    What is the price elasticity of supply?

    <p>A measure of how much the quantity supplied responds to a change in price</p> Signup and view all the answers

    Which of the following goods is likely to be income elastic?

    <p>Furs</p> Signup and view all the answers

    What is the main difference between normal goods and inferior goods?

    <p>Normal goods are income inelastic, while inferior goods are income elastic</p> Signup and view all the answers

    What is true about the quantity demanded of normal goods?

    <p>It increases when income increases</p> Signup and view all the answers

    What is an example of an income inelastic good?

    <p>Food</p> Signup and view all the answers

    If the price of a good increases by 22%, what will be the percentage change in quantity supplied in an elastic supply curve?

    <p>67%</p> Signup and view all the answers

    What is the characteristic of a unit elastic supply curve?

    <p>The percentage change in quantity supplied is equal to the percentage change in price</p> Signup and view all the answers

    If the elasticity of supply is less than 1, what can be said about the responsiveness of quantity supplied to a change in price?

    <p>Quantity supplied is not very responsive to changes in price</p> Signup and view all the answers

    What is the characteristic of a perfectly elastic supply curve?

    <p>Quantity supplied is infinite at any price above a certain level</p> Signup and view all the answers

    If the price of a good increases by 10%, what will be the percentage change in quantity supplied in an inelastic supply curve?

    <p>5%</p> Signup and view all the answers

    What is the elasticity of supply in the graph where a 22% increase in price leads to a 22% increase in quantity supplied?

    <p>Equal to 1</p> Signup and view all the answers

    If the elasticity of supply is greater than 1, what can be said about the responsiveness of quantity supplied to a change in price?

    <p>Quantity supplied is very responsive to changes in price</p> Signup and view all the answers

    What is the characteristic of an inelastic supply curve?

    <p>Quantity supplied is not very responsive to changes in price</p> Signup and view all the answers

    Study Notes

    Price Elasticity of Demand

    • A 67% decrease in quantity demanded leads to a perfectly elastic demand curve.
    • Three characteristics of a perfectly elastic demand curve:
    • At any price above $4, quantity demanded is zero.
    • At exactly $4, consumers will buy any quantity.
    • At a price below $4, quantity demanded is infinite.

    Total Revenue and Price Elasticity of Demand

    • Total revenue (TR) is the amount paid by buyers and received by sellers of a good, computed as TR = P x Q.
    • With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller, thus total revenue increases.
    • With an elastic demand curve, an increase in price leads to a decrease in quantity demanded that is proportionately larger, thus total revenue decreases.

    Income Elasticity of Demand

    • Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers’ income.
    • Income elasticity of demand is computed as the percentage change in quantity demanded divided by the percentage change in income.
    • Types of goods:
    • Normal goods: higher income raises the quantity demanded.
    • Inferior goods: higher income lowers the quantity demanded.
    • Income inelastic goods: necessities such as food, fuel, clothing, utilities, and medical services.
    • Income elastic goods: luxuries such as sports cars, furs, and expensive foods.

    The Elasticity of Supply

    • Price elasticity of supply is a measure of how much the quantity supplied of a good responds to a change in the price of that good.
    • Price elasticity of supply is the percentage change in quantity supplied resulting from a percent change in price.
    • Five types of supply curves:
    • Perfectly inelastic supply: elasticity equals 0.
    • Inelastic supply: elasticity is less than 1.
    • Unit elastic supply: elasticity equals 1.
    • Elastic supply: elasticity is greater than 1.
    • Perfectly elastic supply: elasticity equals infinity.

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    Description

    This quiz explores the concept of price elasticity of demand, including perfectly elastic demand and its graphical representation.

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