AP Microeconomics: Elasticity : Detail View

1)

What is price elasticity of demand?

A measure of change in quantity demanded as it relates to the change in price

2)

What is the ratio of price elasticity of demand?

Percent change in quantity demanded ________________________ percent change in price

3)

If the ratio of price elasticity is greater than one, what type of elasticity is the good considered to have?

Elastic

4)

If the ratio of price elasticity is less than one, what type of elasticity is the good considered to have?

Inelastic

5)

If the ratio of price elasticity is one, what type of elasticity is the good considered to have?

Unit elastic

6)

True or False: when determining the price elasticity ratio for a good, one should include the direction of change (i.e. -5% is different than 5%).

False; the ratio should compare absolute values of change.

7)

The price of a good is raised, and total revenue decreases. What type of elasticity does this good have?

Elastic

8)

The price of a good is decreased, but revenue does not change. What type of elasticity does this good have?

Unit elastic

9)

The price of a good is increased, and revenue increases. What type of elasticity does this good have?

Inelastic

10)

What is the main determinate of the elasticity of a good?

The number of substitutes

11)

Give an example of an inelastic good.

Insulin

12)

True or false: foods tend to be elastic goods.

True; there are many kinds of food, so if the price of one kind goes up, it's easy to buy a different kind that's nearly the same.

13)

What is cross price elasticity?

A measure of the effects in price change of one good on the quantity demanded of another good

14)

If two goods are substitutes, is the price elasticity positive or negative?

Positive

15)

Goods A and B are substitutes. The price of Good A increases. What happens to the quanity demanded of Good B?

It increases

16)

Goods F and G are complements. What happens if the price of Good G increases?

The quantity demanded for good F decreases.

17)

Is the cross price elasticity for complements positive or negative?

Neagtive

18)

What is the income elasticity of demand?

A measure of the effect of an income change on the quantity demanded of a good

19)

What is the ratio used for finding income elasticity of demand?

Percent change in quantity demanded __________________________ percent change in income

20)

If a good is a normal good, what will happen to the quantity demanded of the good as income decreases?

It will decrease.

21)

What is a substitute good?

A good that is bought in place of another as the price of the latter increases

22)

True or False: similar products made by different brands are typically complement goods.

False; similar goods are typically subsitutes.

23)

True or false: hamburgers and hamburger buns are complement goods.

True

24)

What type of good's quantity demanded increases as income decreases?

Inferior

25)

What is the price elasticity of supply?

A measure of the change in quantity supplied as a result of a change in price

26)

What is the ratio used for finding price elasticity of supply?

Percent change in quantity demanded ____________________________ percent change in price

27)

What are the two main determinants of price elasticity of supply?

1. time a supplier has to react to price change 2. substitutionability of factors of production

28)

If a supplier has a good deal of time to respond to a change in price, is the supply more elastic or inelastic?

Elastic

29)

If the factors of production of a good cannot be easily used to produce a different good, is the elasticity of supply more elastic or inelastic?

Inelastic

30)

What does the slope of a perfectly inelastic supply or demand curve look like?

A vertical line

31)

What does the slope of a perfectly elastic supply or demand curve look like?

A horizontal line

32)

Photo card

The one on the right

33)

True or false: on any straight-line, sloped demand curve, there are elastic, inelastic, and unit elastic points.

True

34)

Photo card

A

35)

Photo card

C

36)

At what point on a straight, downward-sloping demand curve is demand unit elastic?

Halfway

37)

Above the halfway point on a straight, downward-sloping demand curve, is the demand elastic or inelastic?

Elastic

38)

Price increases 10%. Quantity demanded decreases 20%. Is this good elastic, inelastic, or unit elastic?

Elastic

39)

Price decreases 40%. Quantity demanded increases 10%. Is this good elastic, inelastic, or unit elastic?

Inelastic

40)

Price increases 50% and quantity demanded decreases 50%. Is this good elastic, inelastic, or unit elastic?

Unit elastic

41)

You increase the price of candy from $1 to $2. Instead of selling four cases a week, you now sell only two. Is the demand for your candy elastic, inelastic, or unit elastic?

Elastic

42)

You sell cookies to help raise money for a school club. Suddenly, your arch nemesis and his club decide to sell cookies, too. What happens to the elasticity of demand of cookies for the school?

It increases (becomes more elastic)

43)

You sell hand-painted pots at the local craft fair every year. This year, your three main competitors all get stuck at home due to a nasty flu. What happens to the elasticity of demand for hand-painted pots at the craft fair?

It decreases (becomes more inelastic)

44)

What kind of competition has a perfectly elastic demand curve?

Perfect competition

45)

What does a perfectly elastic demand curve indicate about that good?

The production of that good is homogenous (i.e. Store A and Store B sell the same good for the same price).

46)

Would a good be more elastic or inelastic when sold in an isolated area?

Probably inelastic, because it would face fewer substitutes in an isolated area

47)

You raise your prices on Good G, but your revenue goes down. What type of good are you selling?

Elastic