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