Microeconomics chapter 6
For product X, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by
3.5 percent for each 1 percent decrease in price, ceteris paribus.
On a demand curve, demand is more elastic
At higher prices
When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus
Demand is inelastic
If the price elasticity of demand is equal to 2, the good has ___ demand.
Elastic
The demand will be _______________ if the consumer has _________ substitute goods to choose from
Elastic; more
When demand is elastic, the absolute number for price elasticity will be
Greater than 1
A demand curve that is completely elastic is
Horizontal
Demand is more price-elastic
In the long run
Smart phones and apps are complementary goods. The cross price elasticity of demand between smart phones and apps is expected to be
Negative
A good is normal if the sign on the income elasticity formula is
Positive
When demand is price-inelastic, ceteris paribus, an increase in
Price leads to greater total revenue
Price elasticity of demand shows how
Responsive the quantity demanded is to a change in price.
Income elasticity measures the
Responsiveness of quantity demanded to a percentage change in income
The demand for normal goods
Rises when income rises
Oil and alternative sources of energy such as wind and solar are
Substitute goods
To find the average percentage change in quantity demanded,
The change in quantity demanded is divided by the average quantity
If two goods are complementary goods, then
The cross-price elasticity sign will be negative
When demand is inelastic
The percentage change in price is greater than the percentage change in quantity demanded.
The basic formula for price elasticity of demand is
The percentage change in quantity demanded divided by the percentage change in price
Supply is very inelastic when
The quantity supplied changes little when the price increases
Supply is very elastic when
The quantity supplied has a large increase in response to an increase in price.
If the demand for cigarettes is inelastic
Total revenue will rise if the price of cigarettes rise
A price change will have no effect on total revenue if demand is
Unitary elastic
If a good is inferior, its
income elasticity of demand is negative
If a good is normal, its
income elasticity of demand is positive