Chapter5 Microeconomics Elasticity

Along a linear demand curve, the slope( __________) while the price elasticity of demand (__________.)

Along a linear demand curve, the slope is constant while the price elasticity of demand changes from one point to another. The price elasticity of demand and the slope of the line are two different things. The slope will not change for a linear function but the elasticity depends on what point on the line you choose to calculate the elasticity. As you move upward on a linear curve the price elasticity of demand will increase in absolute value.

A perfectly inelastic supply curve:

Is perfectly vertical and indicates the quantity supplied does not respond to a change in price

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?

The income elasticity for peanut butter is -3. This defines peanut butter as an inferior good. Any good with a negative income elasticity is an inferior good since as income levels increase you consume less of that good.

Personal computers and computer display monitors are

complimentary goods

The price elasticity of demand (P Ed) is always

negative

items that take up a LARGE quantity of your budget are relatively

elastic (different brands of a product)

Items that take up a smaller portion of your budget are relatively

inelastic (salt is an example)

If the supply of Good B is perfectly elastic and price falls the quantity supplied will

the quantity supplied will fall to zero. Perfectly elastic supply means that any decline in price results in zero units being supplied if the price falls. If the supply did not change it would be perfectly inelastic. Quantity supplied will not increase when prices fall. (Perfect elasticity of supply is primarily theoretical.)