Micro Quiz 6
normal good
Good for which demand increases when income rises.
inferior good
Goods for which demand decreases when income rises.
complementary goods
Goods frequently consumed in combination; when the price of good x rises, the demand for good y falls
substitute goods
Goods that substitute for each other; when the price of good x rises, the demand for good y increases
price elasticity of demand
The percentage change in quantity demanded divided by the percentage change in price.
price elasticity of supply
The percentage change in quantity supplied divided by the percentage change in price.
total revenue
The price of a product multiplied by the quantity sold in a given time period: p × q.
Law of Demand
The quantity of a good demanded in a given time period increases as its price falls
Law of Supply
The quantity of a good supplied in a given time period increases as its price increases
decrease
When demand for a product is relatively elastic and the producing firm raises the price, the producing firm's Total Revenue will:
increase
When demand for a product is relatively inelastic and the producing firm raises the price, the producing firm's Total Revenue will:
The quantity demanded falls to zero in response to a change in the price of this product.
a product has perfectly elastic demand if:
There is zero quantity response by consumers to a change in the price of this product.
a product has perfectly inelastic demand if:
There is a large quantity response by consumers to a change in the price of this product.
a product has relatively elastic demand if:
There is a small quantity response by consumers to a change in the price of this product.
a product has relatively inelastic demand if:
Consumers have a lengthy time period to adjust to a change in the product's price.
a product is more likely to have relatively elastic demand if:
Spending on the product takes up a large percentage of the consumer income (product has a high price-to-income ratio).
a product is more likely to have relatively elastic demand if:
The product has many good available substitutes.
a product is more likely to have relatively elastic demand if:
The product is classified as a luxury good.
a product is more likely to have relatively elastic demand if:
Consumers have a short time period to adjust to a change in the product's price.
a product is more likely to have relatively inelastic demand if:
Spending on the product takes up a small percentage of the consumer income (product has a low price-to-income ratio).
a product is more likely to have relatively inelastic demand if:
The product has few good available substitutes.
a product is more likely to have relatively inelastic demand if:
The product is classified as a necessary good (necessity).
a product is more likely to have relatively inelastic demand if:
greater than one
a product will be classified as having relatively elastic demand if the product's PED coefficient is:
less than 1
a product will be classified as having relatively inelastic demand if the product's PED coefficient is:
equal to one
a product will be classified as having unitary elastic demand if the product's PED coefficient is:
A horizontal demand curve
a product's demand curve is described as being perfectly elastic if it is
vertical demand curve
a product's demand curve is described as being perfectly inelastic if it is:
A downward-sloping but "flat looking" demand curve
a product's demand curve is described as being relatively elastic if it is:
A downward-sloping but "steep looking" demand curve
a product's demand curve is described as being relatively inelastic if it is:
very few products have perfectly elastic demand
how many real-world products have perfectly elastic demand?
Very few products have perfectly inelastic demand
how many real-world products have perfectly inelastic demand?
The percentage change in quantity demanded divided by the percentage change in price
the Basic Formula that we use in this class to calculate a PED coefficient is:
demand
the foundation for understanding our new concept of Price Elasticity of Demand (PED) lies with the Law of
absolute value
we will keep things as simple as possible by taking the__________ _________ of our PED coefficients.
demand curve
A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period
Consumers are willing and able to purchase a larger quantity of this good
According to this law, as the price of a good decreases
Consumers are willing and able to purchase a smaller quantity of this good
According to this law, as the price of a good increases:
negative
PED coefficients are automatically ___ numbers
income elasticity of demand
Percentage change in quantity demanded divided by percentage change in income.
cross-price elasticity of demand
Percentage change in the quantity demanded of X divided by the percentage change in the price of Y.
size
Price Elasticity of Demand (PED) shows us the ___ of the consumer response to a change in the price of a product.
The percentage change in quantity demand will be two and one-half times larger than the percentage change in price.
Suppose you are told that the PED coefficient for a three-mile ride with Uber is 2.50. What does this mean?
The percentage change in quantity demand will be only three quarters the size of the percentage change in price.
Suppose you are told that the PED coefficient for an hour of rock-wall climbing at the gym is 0.75. What does this mean?
