Chapter 5 : Elasticity and Its Application

The price of a good rises from $16 to $24, and the quantity supplied rises from 90 to 110 units. Calculated with the midpoint method, the price elasticity of supply is

1/2

demand would tend to be price inelastic.

If consumers think that there are very few substitutes for a good, then

less than 1

If supply is price inelastic, the value of the price elasticity of supply must be

price elasticity

If there is excess capacity in a production facility, it is likely that the firm's supply curve is

The citizens of Lilliput spend a higher fraction of their income on food than do the citizens of Brobdingnag. The reason could be that

Lilliput has lower income, and the income elasticity of demand is 0.5.

reduce total revenue to farmers as a whole because the demand for food is inelastic.

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

Elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

the good is a necessity

Which of the following would cause a demand curve for a good to be price inelastic?

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in price of the second good

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

A linear, downward-sloping demand curve is

inelastic at some points, and elastic at others

Elasticity

is a measure of how much buyers and sellers respond to changes in market conditions

An increase in a good's price reduces the total amount consumers spend on the good if the ________ elasticity of demand is ________ than one

price, greater

Inelastic

quantity demanded changes little as price changes (Necessity) (Less than One)

Elastic

quantity demanded changes significantly as price changes (luxuries) (Greater than One)

A good tends to have a small price elasticity of demand if

the good is a necessity

The ability of firms to enter and exit a market over time means that, in the long run,

the supply curve is more elastic.

total revenue

the total amount of money a firm receives by selling goods or services

If the price elasticity of supply is zero, the supply curve is

vertical