chapter 5 review

if demand is elastic, how will an increase in price change total revenue?

If demand is elastic, an increase in price reduces total revenue. With elastic demand, the quantity demanded falls by a greater percentage than the price rises. As a result, total revenue moves in the opposite direction as the price. Thus, if price rises, total revenue falls.

what do we call a good with an income elasticity less than zero?

an inferior good because as income rises, the quantity demanded declines.

if the elasticity is greater than 1, is demand elastic or inelastic? if the elasticity equals zero, is demand perfectly elastic or perfectly inelastic?

An elasticity greater than one means that demand is elastic. When the elasticity is greater than one, the percentage change in quantity demanded exceeds the percentage change in price. When the elasticity equals zero, demand is perfectly inelastic. There is no change in quantity demanded when there is a change in price.

a storm destroys half the fava bean crop. is this event more likely to hurt favs bean farmers if the demand for faca beans is very elastic or very inelastic?

Destruction of half of the fava bean crop is more likely to hurt fava bean farmers if the demand for fava beans is very elastic. Destruction of half of the crop causes the supply curve to shift to the left resulting in a higher price of fava beans. When demand is very elastic, an increase in price leads to a decrease in total revenue because the decrease in quantity demanded outweighs the increase in price.

if a fixed quantity of a good is available, and no more can be made, what is the price elasticity of supply?

If a fixed quantity of a good is available and no more can be made, the price elasticity of supply is zero. Regardless of the percentage change in price, there will be no change in the quantity supplied.

List and explain the four determinants of the price elasticity of demand discussed in the chapter

The determinants of the price elasticity of demand include the availability of close substitutes, whether the good is a necessity or a luxury, the breadth of the definition of the market, and the time horizon. Goods with close substitutes have greater elasticities, luxury goods have greater price elasticities than necessities, goods in more narrowly defined markets have greater elasticities, and the elasticity of demand is greater the longer the time horizon.

how is the price elasticity of supply calculated? explain what it measures

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. It measures how much quantity supplied responds to changes in price.

Define the price elasticity of demand and the income elasticity of demand

The price elasticity of demand measures how much quantity demanded responds to a change in price. The income elasticity of demand measures how much quantity demanded responds to changes in consumers' income.