4 – Elasticity

the responsiveness of the demand for a good to a change in the price of a substitute or complement, other things remaining the same; calculated as the percentage change in the quantity demanded divided by the percentage change in the price of the substitute or complement

demand with a price elasticity greater than 1; other things remaining the same, the percentage change in the quantity demanded exceeds the percentage change in price

the responsiveness of the quantity supplied of a good to a change in its price, other things remaining the same

the responsiveness of the demand for a good to a change in income, other things remaining the same; calculated as the percentage change in the quantity demanded divided by the percentage change in income

a demand with a price elasticity between 0 and 1; the percentage change in the quantity demanded is less than the percentage change in price

demand with an infinite price elasticity; the quantity demanded changes by an infinitely large percentage in response to a tiny price change

demand with a price elasticity of 0; the quantity demanded remains constant when the price changes

the units-free measure of the responsiveness of the quantity demanded of a good to a change in its price, when all other influences on buyers' plans remain the same

the value of a firm's sales; calculated as the price of the good multiplied by the quantity sold

a method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the price, when all other influences on the quantity sold remain the same

demand with a price elasticity of 1; the percentage change in the quantity demanded equals the percentage change in price

false: the slope of the demand curve equals the change in y over the change in x whereas the price elasticity of demand equals (the change in Q divided by the average Q) divided by (the change in P divided by the average P).

true: the smallest value for the price elasticity of demand, 0, means demand is perfectly inelastic; the largest, infinity, means perfectly elastic demand.

true: the stronger the response to a price change, the larger is the elasticity.

true: other brands of gasoline, such as Shell or BP, are close substitutes for Exxon, so the demand for Exxon gasoline is likely to be elastic.

true: generally, the larger the total budget share spent on a good, the larger is the price elasticity of demand.

true: the price elasticity of demand for food in poor nations is larger than that in rich nations because in poor nations, food takes a larger portion of consumer's incomes.

false: as more time passes, more changes in demand can occur, so demand becomes more elastic.

false: moving downward along a linear demand curve, the price elasticity of demand falls.

false: the demand for Domino's Pizza is elastic; raising the price decreases the quantity by so much that total revenue declines.

false: to be elastic, the price elasticity of demand must exceed 1.0.

true: an increase in income decreases the demand for inferior goods and increases it for normal goods.

true: hot dogs and hot dog buns are complements, so the cross elasticity of demand is negative.

false: the price elasticity of supply equals the percentage change in the quantity supplied divided by the percentage change in price.

true: when the elasticity of supply equals zero, the supply is perfectly inelastic.

false: demand is elastic when the price elasticity of demand exceeds 1.0.