Elasticity of Demand Quiz

Demand is considered elastic when a change in price leads to a proportionally larger change in quantity demanded. For example, if the price increases by 10%, and the quantity demanded decreases by 20%, the demand is elastic.

Demand is considered inelastic when a change in price leads to a proportionally smaller change in quantity demanded. For example, if the price increases by 10%, and the quantity demanded decreases by only 5%, the demand is inelastic.

When the percentage change in quantity demanded equals the percentage change in price, demand has unit elasticity. For example, if a 10% price increase causes a 10% decrease in quantity demanded, the demand has unit elasticity.

The flatter the demand curve, the greater the price elasticity of demand. This means a small change in price will cause a big change in quantity demanded.

The steeper the demand curve, the smaller the price elasticity of demand. This means a large change in price will cause a small change in quantity demanded.

Perfectly inelastic demand occurs when the quantity demanded remains the same regardless of price changes. This is represented by a vertical demand curve.

Perfectly elastic demand occurs when a small price change leads to an infinite change in quantity demanded. This is represented by a horizontal demand curve.

The price elasticity of demand is a measure of how sensitive 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.

A 1% change in price results in a 1% change in quantity demanded.

The amount of money that buyers pay and sellers receive for a good.

The relationship between price and quantity demanded.

Shows the relationship between a good's price and total revenue.

The price elasticity of supply measures how responsive the quantity supplied of a good is to changes in its price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.

A supply curve that is relatively flat indicates a high price elasticity of supply, meaning a small change in price leads to a large change in quantity supplied. Conversely, a steeper supply curve suggests a low price elasticity of supply, meaning a large price change results in a small change in quantity supplied.

In the short run, firms have limited capacity to adjust production levels in response to price changes. This makes the supply more inelastic, meaning that changes in price might not significantly alter the quantity supplied. However, in the long run, firms have more flexibility to adjust their production processes, technology, and even plant size. This increased flexibility allows for greater responsiveness to price changes, resulting in a more elastic supply.

When a firm produces near its maximum capacity, it becomes increasingly difficult to produce more goods, even with a price increase. This leads to a decrease in price elasticity of supply, meaning that even larger changes in price result in smaller changes in quantity supplied.

When a firm operates at low production levels, it often has spare resources and can easily increase production in response to a price increase. This results in high price elasticity of supply, meaning small price changes can lead to significant changes in quantity supplied.

Measures how much the quantity demanded of a good changes in response to a change in consumers' income.

A good where an increase in income causes a decrease in the quantity demanded. For example, if people buy fewer bus tickets as their income rises.

A good where an increase in income causes an increase in the quantity demanded.

Good where a small change in income causes a big change in the quantity demanded.

Good where a small change in income causes a small change in the quantity demanded.

Measures how much the quantity demanded of one good changes in response to a change in the price of another good.

Goods where a price increase of one good makes the demand for another good increase, like peanut butter and jelly.

Goods where a price increase of one good makes the demand for another good decrease, like butter and margarine.

The situation where a small change in price leads to a large change in the quantity demanded or supplied.

The situation where a large change in price leads to a small change in the quantity demanded or supplied.

The tendency for supply and demand curves to become more elastic in the long run, allowing for greater adjustments in response to price changes.

When the supply of a good is restricted, leading to higher prices in the short run.

The phenomenon where a cartel, like OPEC, can successfully maintain high prices in the short run but faces difficulties in the long run due to increased elasticity of supply and demand.

The increased exploration and production of oil by non-OPEC producers in response to high prices, making supply more elastic in the long run.

The shift in demand for oil due to consumers' increased conservation efforts, such as purchasing fuel-efficient vehicles, in response to higher prices.

The quantity of known oil reserves and the capacity for oil extraction cannot be changed quickly, resulting in a smaller change in quantity supplied in response to price changes.

The price of oil doubled from 1979 to 1981, but OPEC couldn't sustain this high price due to factors like increased production by non-OPEC members and reduced demand due to high prices.

OPEC's attempts to control oil prices through supply restrictions in the 1970s and 1980s demonstrated that supply and demand can behave differently in the short run and long run.

A situation where a change in price leads to a proportionally smaller change in quantity demanded. For example, if the price of oil increases by 10%, and the quantity demanded decreases by only 5%, then demand is inelastic.

A situation where a change in price leads to a proportionally larger change in quantity demanded. For example, if the price increases by 10%, and the quantity demanded decreases by 20%, then demand is elastic.

The demand for oil can be inelastic in the short run because people need oil for transportation and other essential activities, even if it becomes more expensive.

The price of oil plunged by 45% in 1986 due to the breakdown of cooperation among OPEC members, as they competed to increase their market share.

The price of oil (adjusted for inflation) returned to its 1970 level around 1990 and remained there through the 1990s, indicating a recovery of the oil market after the OPEC crises.