CH. 20 - Elasticity

Suppose the price of soccer shoes decreases by 7 percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded. The value of the cross-price elasticity of demand is

-1.71

If demand is elastic, then

An increase in price will reduce total revenue.

Refer to figure 20.2. If the area OP1AB is less than the area OP2CD, we can conclude that the price elasticity of demand between point A and point C is

Elastic

If a good is inferior, it's

Income elasticity of demand is negative

If income falls by 5 percent and the quantity demanded for new cars falls by 10 percent,

New cars are normal good, and the income elasticity is +2.0

If two goods are complementary goods, then

The cross-price elasticity sign will be negative.

The basic formula for price elasticity and demand is

The percent change in quantity demanded divided by the percentage change in price.

When demand is inelastic

The percentage in price is greater than the percentage change in quantity demanded.

Refer to figure 20.2. Suppose the areas OP1AB and OP2CD are equal. We can conclude that the price elasticity of demand between point A and point C is

Unitary elastic.

Which of the following is the best measure of the effects of a recession

income elasticity of demand