©2004 prentice hall publishing ayers/collinge, 1/e 1 chapter 15 “elasticity: measuring...

1 ©2004 Prentice Hall Publishing Ayers/Collinge, 1/e

Chapter 15Chapter 15“Elasticity: Measuring “Elasticity: Measuring

Responsiveness”Responsiveness”

Chapter 15Chapter 15“Elasticity: Measuring “Elasticity: Measuring

Responsiveness”Responsiveness”

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLYby Ayers and Collingeby Ayers and Collinge

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLYby Ayers and Collingeby Ayers and Collinge


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

1.1. Discuss how elasticity is used to Discuss how elasticity is used to measure the responsiveness.measure the responsiveness.

2.2. Compute the elasticity of demand.Compute the elasticity of demand.3.3. Describe the conditions under which a Describe the conditions under which a

price change would increase, decrease, price change would increase, decrease, or not change a firm’s revenue.or not change a firm’s revenue.

4.4. Discuss the significance of the income Discuss the significance of the income elasticity of demand, the cross elasticity elasticity of demand, the cross elasticity of demand, and the elasticity of supply.of demand, and the elasticity of supply.

1.1. Discuss how elasticity is used to Discuss how elasticity is used to measure the responsiveness.measure the responsiveness.

2.2. Compute the elasticity of demand.Compute the elasticity of demand.3.3. Describe the conditions under which a Describe the conditions under which a

price change would increase, decrease, price change would increase, decrease, or not change a firm’s revenue.or not change a firm’s revenue.

4.4. Discuss the significance of the income Discuss the significance of the income elasticity of demand, the cross elasticity elasticity of demand, the cross elasticity of demand, and the elasticity of supply.of demand, and the elasticity of supply.


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

5.5. Explain how elasticity determines who Explain how elasticity determines who ultimately pays a sales tax.ultimately pays a sales tax.

6.6. Discuss how the war on drugs increases Discuss how the war on drugs increases crime associated with drug use.crime associated with drug use.

5.5. Explain how elasticity determines who Explain how elasticity determines who ultimately pays a sales tax.ultimately pays a sales tax.

6.6. Discuss how the war on drugs increases Discuss how the war on drugs increases crime associated with drug use.crime associated with drug use.


15.115.1COMPUTING ELASTICITYCOMPUTING ELASTICITY15.115.1COMPUTING ELASTICITYCOMPUTING ELASTICITY

• ElasticityElasticity measures how one variable measures how one variable changes as a result of another variable changes as a result of another variable changing.changing.

• All elasticities arise from this same formula.All elasticities arise from this same formula.• Different elasticities merely name the variables Different elasticities merely name the variables

differently. differently.

• ElasticityElasticity measures how one variable measures how one variable changes as a result of another variable changes as a result of another variable changing.changing.

• All elasticities arise from this same formula.All elasticities arise from this same formula.• Different elasticities merely name the variables Different elasticities merely name the variables

differently. differently.

ElasticityElasticity = = Percentage change in one variable (Y) Percentage change in one variable (Y)

Percentage change in another variable (X)Percentage change in another variable (X)

ElasticityElasticity = = Percentage change in one variable (Y) Percentage change in one variable (Y)

Percentage change in another variable (X)Percentage change in another variable (X)


Elasticity has a broad range of Elasticity has a broad range of applications.applications.Price elasticity of demandPrice elasticity of demandPrice elasticity of supplyPrice elasticity of supplyCross price elasticityCross price elasticityIncome ElasticityIncome Elasticity

Elasticity has a broad range of Elasticity has a broad range of applications.applications.Price elasticity of demandPrice elasticity of demandPrice elasticity of supplyPrice elasticity of supplyCross price elasticityCross price elasticityIncome ElasticityIncome Elasticity

Computing ElasticityComputing ElasticityComputing ElasticityComputing Elasticity


Midpoints FormulaMidpoints FormulaMidpoints FormulaMidpoints Formula

• The measure of percentage changes is The measure of percentage changes is provided by the provided by the midpoints formula.midpoints formula.– The formula computes a percentage change The formula computes a percentage change

as the change in the variable divided by an as the change in the variable divided by an amount halfway between the starting and amount halfway between the starting and ending amount.ending amount.

Percentage change in Y= Percentage change in Y= change in Y/Y midpointchange in Y/Y midpointDivided byDivided byPercentage change in X=Percentage change in X= change in X/X midpointchange in X/X midpoint

• The measure of percentage changes is The measure of percentage changes is provided by the provided by the midpoints formula.midpoints formula.– The formula computes a percentage change The formula computes a percentage change

as the change in the variable divided by an as the change in the variable divided by an amount halfway between the starting and amount halfway between the starting and ending amount.ending amount.

Percentage change in Y= Percentage change in Y= change in Y/Y midpointchange in Y/Y midpointDivided byDivided byPercentage change in X=Percentage change in X= change in X/X midpointchange in X/X midpoint


15.215.2THE ELASTICITY OF DEMANDTHE ELASTICITY OF DEMAND15.215.2THE ELASTICITY OF DEMANDTHE ELASTICITY OF DEMAND

o The The elasticity of demandelasticity of demand measures the responsiveness measures the responsiveness of quantity demanded to changes in price.of quantity demanded to changes in price.

o It is sometimes referred to as the It is sometimes referred to as the price elasticity of price elasticity of demand.demand.

o Since price and quantity demanded are inversely Since price and quantity demanded are inversely related, the computation of elasticity of demand will related, the computation of elasticity of demand will always result in a negative value.always result in a negative value.

o For convenience, the elasticity of demand is stated as For convenience, the elasticity of demand is stated as an absolute value, meaning the minus sign is an absolute value, meaning the minus sign is ignored.ignored.

o The The elasticity of demandelasticity of demand measures the responsiveness measures the responsiveness of quantity demanded to changes in price.of quantity demanded to changes in price.

o It is sometimes referred to as the It is sometimes referred to as the price elasticity of price elasticity of demand.demand.

o Since price and quantity demanded are inversely Since price and quantity demanded are inversely related, the computation of elasticity of demand will related, the computation of elasticity of demand will always result in a negative value.always result in a negative value.

o For convenience, the elasticity of demand is stated as For convenience, the elasticity of demand is stated as an absolute value, meaning the minus sign is an absolute value, meaning the minus sign is ignored.ignored.


The Elasticity of DemandThe Elasticity of DemandThe Elasticity of DemandThe Elasticity of Demand

o The elasticity of demand is not the same as The elasticity of demand is not the same as the slope of demand.the slope of demand.

o The slope of demand divides the change in The slope of demand divides the change in price by the change quantity, without price by the change quantity, without reference to percentages.reference to percentages.

o The slope measures absolute changes, while The slope measures absolute changes, while elasticity measures percentage changes.elasticity measures percentage changes.

o The elasticity of demand is not the same as The elasticity of demand is not the same as the slope of demand.the slope of demand.

o The slope of demand divides the change in The slope of demand divides the change in price by the change quantity, without price by the change quantity, without reference to percentages.reference to percentages.

o The slope measures absolute changes, while The slope measures absolute changes, while elasticity measures percentage changes.elasticity measures percentage changes.


Classifying the Elasticity of Classifying the Elasticity of DemandDemand

Classifying the Elasticity of Classifying the Elasticity of DemandDemand

Inelastic demandInelastic demand has an elasticity coefficient has an elasticity coefficient whose value lies between 0 and 1.whose value lies between 0 and 1.

Unit elastic demandUnit elastic demand has an elasticity coefficient has an elasticity coefficient whose value equals 1.whose value equals 1.

Elastic demandElastic demand has an elasticity coefficient has an elasticity coefficient whose value is greater than 1.whose value is greater than 1.

Other things being equal, the more substitutes Other things being equal, the more substitutes there are for a product, or the greater the there are for a product, or the greater the fraction a product takes of a person’s budget fraction a product takes of a person’s budget to buy the product, the greater will be its to buy the product, the greater will be its elasticity of demand.elasticity of demand.

Inelastic demandInelastic demand has an elasticity coefficient has an elasticity coefficient whose value lies between 0 and 1.whose value lies between 0 and 1.

Unit elastic demandUnit elastic demand has an elasticity coefficient has an elasticity coefficient whose value equals 1.whose value equals 1.

Elastic demandElastic demand has an elasticity coefficient has an elasticity coefficient whose value is greater than 1.whose value is greater than 1.

Other things being equal, the more substitutes Other things being equal, the more substitutes there are for a product, or the greater the there are for a product, or the greater the fraction a product takes of a person’s budget fraction a product takes of a person’s budget to buy the product, the greater will be its to buy the product, the greater will be its elasticity of demand.elasticity of demand.


The Range of the Elasticity of DemandThe Range of the Elasticity of DemandThe Range of the Elasticity of DemandThe Range of the Elasticity of Demand

0

Inelastic Elastic

Elasticity of DemandElasticity of Demand

1

Unit Elastic

This value can rangeThis value can rangefrom zero to infinityfrom zero to infinity(in absolute value)(in absolute value)


Estimates of Demand ElasticitiesEstimates of Demand ElasticitiesEstimates of Demand ElasticitiesEstimates of Demand Elasticities

Product Elasticity of DemandBeef 0.35

Fish 0.39

Public Transit 0.40

Peak use electricity .47

Physician services 0.60

Poultry 0.64

Fruit 0.71

Peak use residential electricity 1.5

Restaurant meals 2.3

Kellogg’s Fruit Loops 2.3

Cheerios 3.6

Coke 3.8

Mountain Dew 4.4

Fresh Tomatoes 4.6


Elasticity and Total RevenueElasticity and Total RevenueElasticity and Total RevenueElasticity and Total Revenue

Total Revenue = Price Total Revenue = Price Quantity Quantity

When PWhen P

TRTR constant

TR

Depending upon the elasticityDepending upon the elasticity


Total RevenueTotal RevenueTotal RevenueTotal Revenue

Quantity

$

Price

Quantity demanded

Total revenue = price x quantitywhich is the area of the shadedrectangle.

Demand


The Effect of a Change in Total The Effect of a Change in Total RevenueRevenue

The Effect of a Change in Total The Effect of a Change in Total RevenueRevenue

Change in PriceChange in Price Effect on Total RevenueEffect on Total Revenue

Higher PriceHigher Price If demand is inelastic, total revenue If demand is inelastic, total revenue rises.rises.

If demand is unit elastic, total revenue If demand is unit elastic, total revenue remains constant.remains constant.

If demand is elastic, total revenue falls.If demand is elastic, total revenue falls.

Lower priceLower price If demand is inelastic, total revenue If demand is inelastic, total revenue falls.falls.

If demand is unit elastic, total revenue If demand is unit elastic, total revenue remains constant.remains constant.

If demand is elastic, total revenue rises.If demand is elastic, total revenue rises.


The longer the time period that quantity The longer the time period that quantity demanded adjusts, the greater the elasticity of demanded adjusts, the greater the elasticity of demand.demand.

Time lets people adjust, to substitute towards Time lets people adjust, to substitute towards goods that have become relatively less expensive goods that have become relatively less expensive and away from those that become relatively more and away from those that become relatively more expensive.expensive.

The elasticity of demand will vary along most The elasticity of demand will vary along most demand curves. Along a downward sloping, demand curves. Along a downward sloping, straight line demand curve, demand is unit elastic straight line demand curve, demand is unit elastic at the midpoint, elastic above the midpoint, and at the midpoint, elastic above the midpoint, and inelastic below the midpoint.inelastic below the midpoint.

The longer the time period that quantity The longer the time period that quantity demanded adjusts, the greater the elasticity of demanded adjusts, the greater the elasticity of demand.demand.

Time lets people adjust, to substitute towards Time lets people adjust, to substitute towards goods that have become relatively less expensive goods that have become relatively less expensive and away from those that become relatively more and away from those that become relatively more expensive.expensive.

The elasticity of demand will vary along most The elasticity of demand will vary along most demand curves. Along a downward sloping, demand curves. Along a downward sloping, straight line demand curve, demand is unit elastic straight line demand curve, demand is unit elastic at the midpoint, elastic above the midpoint, and at the midpoint, elastic above the midpoint, and inelastic below the midpoint.inelastic below the midpoint.

Elasticity and Total RevenueElasticity and Total RevenueElasticity and Total RevenueElasticity and Total Revenue


Elasticity Varies along Linear Demand Elasticity Varies along Linear Demand CurvesCurves

Elasticity Varies along Linear Demand Elasticity Varies along Linear Demand CurvesCurves

Midpoint: Unit Elastic

DemandQuantity

Pri

ce (

$’s)

Elastic

Inelastic


Demand and Total RevenueDemand and Total RevenueDemand and Total RevenueDemand and Total Revenue

Data Point Price ($) Quantity Demanded Total Revenue = PxQ Marginal Revenue A 5 0 0 UndefinedB 4 1 4 4C 3 2 6 2E 2 3 6 0F 1 4 4 -2G 0 5 0 -4


Computing the Elasticity of Computing the Elasticity of DemandDemand

Computing the Elasticity of Computing the Elasticity of DemandDemand

Table 4A-2Table 4A-2

Between Points ΔP/(P0 + P1) ΔQ/(Q0 + Q1) Elasticity of DemandA and B 0.111 1 9B and C 0.143 0.33 2.33C and E 0.2 0.2 1E and F 0.33 0.143 0.429F and G 1 0.111 0.111


Demand, Elasticity, Total Revenue, Demand, Elasticity, Total Revenue, and Marginal Revenueand Marginal Revenue


Total RevenueTotal Revenue

Marginal Revenue

Demand

QuantityQuantity

Dol

lars

Dol

lars

55

44

33

2

11

0011 22

33

44 5

AA

BB

CC

DD

EE

FF

Elasticity =9

Elasticity =2.33

Elasticity =.43

Elasticity =1

Elasticity =.11




ElasticElastic

InelasticInelastic

UnitUnit

ElasticElastic

Total RevenueTotal Revenue

Marginal RevenueMarginal Revenue

DemandDemand

QuantityQuantity

Dol

lars

Dol

lars

Total revenue is maximizedTotal revenue is maximizedwhen demand is unit elastic.when demand is unit elastic.

Each firm produces inthe elastic range of its demand curve.


The Extremes of ElasticityThe Extremes of ElasticityThe Extremes of ElasticityThe Extremes of Elasticity

QuantityQuantity QuantityQuantity Quantity

DemandDemand

DemandDemand

DemandDemand

Dol

lars

Do l

lars

Dol

lars

Do l

lars

Dol

lars

Do l

lars

22 44 1212

66

33

11

1. Perfectly Inelastic Elasticity = 0

2. Unit Elastic

Elasticity =1

3. Perfectly Elastic

Elasticity =


15.315.3INCOME AND CROSS ELASTICITIES OF INCOME AND CROSS ELASTICITIES OF DEMANDDEMAND

15.315.3INCOME AND CROSS ELASTICITIES OF INCOME AND CROSS ELASTICITIES OF DEMANDDEMANDThe The income elasticity of demandincome elasticity of demand measures how measures how

demand responds to income.demand responds to income.It is computed by dividing the percentage It is computed by dividing the percentage

change in quantity demanded, by the change in quantity demanded, by the percentage in income.percentage in income.

A positive income elasticity indicates the good A positive income elasticity indicates the good is a normal good.is a normal good.

A negative income elasticity of demand A negative income elasticity of demand indicates the good is inferior.indicates the good is inferior.

The The income elasticity of demandincome elasticity of demand measures how measures how demand responds to income.demand responds to income.

It is computed by dividing the percentage It is computed by dividing the percentage change in quantity demanded, by the change in quantity demanded, by the percentage in income.percentage in income.

A positive income elasticity indicates the good A positive income elasticity indicates the good is a normal good.is a normal good.

A negative income elasticity of demand A negative income elasticity of demand indicates the good is inferior.indicates the good is inferior.


Income and Cross Elasticities of Income and Cross Elasticities of DemandDemand

Income and Cross Elasticities of Income and Cross Elasticities of DemandDemand

The The cross elasticity of demandcross elasticity of demand measures how the measures how the demand for one good responds to changes in demand for one good responds to changes in the price of another good.the price of another good.

It is computed by dividing the percentage It is computed by dividing the percentage change in quantity demanded of one good, by change in quantity demanded of one good, by the percentage in the price of another good.the percentage in the price of another good.

A positive cross elasticity indicates the goods A positive cross elasticity indicates the goods are substitutesare substitutes

A negative cross elasticity of demand indicates A negative cross elasticity of demand indicates the goods are complements.the goods are complements.

The The cross elasticity of demandcross elasticity of demand measures how the measures how the demand for one good responds to changes in demand for one good responds to changes in the price of another good.the price of another good.

It is computed by dividing the percentage It is computed by dividing the percentage change in quantity demanded of one good, by change in quantity demanded of one good, by the percentage in the price of another good.the percentage in the price of another good.

A positive cross elasticity indicates the goods A positive cross elasticity indicates the goods are substitutesare substitutes

A negative cross elasticity of demand indicates A negative cross elasticity of demand indicates the goods are complements.the goods are complements.


15.415.4THE ELASTICITY OF SUPPLYTHE ELASTICITY OF SUPPLY15.415.4THE ELASTICITY OF SUPPLYTHE ELASTICITY OF SUPPLYThe The elasticity of supplyelasticity of supply measures the measures the responsiveness of quantity supplied to price. responsiveness of quantity supplied to price. Elasticity of supply can fall within the following three ranges:Elasticity of supply can fall within the following three ranges:

Inelastic Supply:Inelastic Supply:

Elasticity of supply lies between 0 and 1.Elasticity of supply lies between 0 and 1. Unit Elastic Supply:Unit Elastic Supply:

Elasticity of supply = 1.Elasticity of supply = 1. Elastic Supply:Elastic Supply:

Elasticity of supply is greater than 1.Elasticity of supply is greater than 1.

The The elasticity of supplyelasticity of supply measures the measures the responsiveness of quantity supplied to price. responsiveness of quantity supplied to price. Elasticity of supply can fall within the following three ranges:Elasticity of supply can fall within the following three ranges:

Inelastic Supply:Inelastic Supply:

Elasticity of supply lies between 0 and 1.Elasticity of supply lies between 0 and 1. Unit Elastic Supply:Unit Elastic Supply:

Elasticity of supply = 1.Elasticity of supply = 1. Elastic Supply:Elastic Supply:

Elasticity of supply is greater than 1.Elasticity of supply is greater than 1.


The Extremes of Supply ElasticityThe Extremes of Supply ElasticityThe Extremes of Supply ElasticityThe Extremes of Supply Elasticity

Quantity Quantity Quantity

SupplySupply

SupplySupply

Dol

lars

Do l

lars

Do l

lars

1. Perfectly Inelastic Elasticity = 0

2. Unit Elastic

Elasticity =1

3. Perfectly Elastic

Elasticity =

SupplySupply


15.515.5TAX SHIFTING AND THE ELASTICITIES TAX SHIFTING AND THE ELASTICITIES OF SUPPLY AND DEMANDOF SUPPLY AND DEMAND

15.515.5TAX SHIFTING AND THE ELASTICITIES TAX SHIFTING AND THE ELASTICITIES OF SUPPLY AND DEMANDOF SUPPLY AND DEMAND

When a product is taxed, how much of that tax will the When a product is taxed, how much of that tax will the buyers pay, and how much of the tax will the sellers pay? buyers pay, and how much of the tax will the sellers pay? The answer to that question of who ultimately shoulders The answer to that question of who ultimately shoulders the the tax burdentax burden depends upon the demand and supply depends upon the demand and supply elasticities of the product taxed.elasticities of the product taxed.

Usually the tax burden is shared between producers and Usually the tax burden is shared between producers and consumers.consumers.

Consumers pay more of the tax if demand is relatively less Consumers pay more of the tax if demand is relatively less elastic than supply.elastic than supply.

Producers pay more of the tax if demand is relatively more Producers pay more of the tax if demand is relatively more elastic than supply.elastic than supply.

When a product is taxed, how much of that tax will the When a product is taxed, how much of that tax will the buyers pay, and how much of the tax will the sellers pay? buyers pay, and how much of the tax will the sellers pay? The answer to that question of who ultimately shoulders The answer to that question of who ultimately shoulders the the tax burdentax burden depends upon the demand and supply depends upon the demand and supply elasticities of the product taxed.elasticities of the product taxed.

Usually the tax burden is shared between producers and Usually the tax burden is shared between producers and consumers.consumers.

Consumers pay more of the tax if demand is relatively less Consumers pay more of the tax if demand is relatively less elastic than supply.elastic than supply.

Producers pay more of the tax if demand is relatively more Producers pay more of the tax if demand is relatively more elastic than supply.elastic than supply.


Partial Tax ShiftingPartial Tax ShiftingPartial Tax ShiftingPartial Tax Shifting

Demand

Cigarettes

Supply

Tax

Supply plus Tax

#1 The tax changes the market equilibrium to ahigher price and a lowerquantity.

#2 sellers receive less.

#2 Consumerspay more.

Do l

lars


15.6 EXPLORE & APPLY15.6 EXPLORE & APPLYCRIME AND THE MARKET FOR CRIME AND THE MARKET FOR DRUGSDRUGS

15.6 EXPLORE & APPLY15.6 EXPLORE & APPLYCRIME AND THE MARKET FOR CRIME AND THE MARKET FOR DRUGSDRUGS

Supply in Free MarketSupply in Free Market

Supply with Drug WarSupply with Drug War

DemandDemand

PPfmfm

PPdwdw

QQdwdw QQfmfm

#1 The drug war changes the market equilibrium, causing a higher price and lower quantity of output.

Dol

lars

Dol

lars

#2 The revenue increases from

the higher price

#3 far exceeds the revenue

decreases from the lower quantity


Terms along the WayTerms along the WayTerms along the WayTerms along the Way

elasticityelasticity elasticity of demandelasticity of demand inelasticinelastic unit elastic demandunit elastic demand elastic demandelastic demand total revenuetotal revenue perfectly inelasticperfectly inelastic unit elastic unit elastic

throughoutthroughout perfectly elasticperfectly elastic

elasticityelasticity elasticity of demandelasticity of demand inelasticinelastic unit elastic demandunit elastic demand elastic demandelastic demand total revenuetotal revenue perfectly inelasticperfectly inelastic unit elastic unit elastic

throughoutthroughout perfectly elasticperfectly elastic

income elasticity of income elasticity of demanddemand

cross elasticity of cross elasticity of demanddemand

elasticity of supplyelasticity of supply inelastic supplyinelastic supply unit elastic supplyunit elastic supply elastic supplyelastic supply tax burdentax burden tax shiftingtax shifting

income elasticity of income elasticity of demanddemand

cross elasticity of cross elasticity of demanddemand

elasticity of supplyelasticity of supply inelastic supplyinelastic supply unit elastic supplyunit elastic supply elastic supplyelastic supply tax burdentax burden tax shiftingtax shifting


Test YourselfTest YourselfTest YourselfTest Yourself

1.1. The formula for all elasticities is the The formula for all elasticities is the a.a. change in one variable divided by the change in change in one variable divided by the change in

another variable.another variable.b.b. change in one variable minus the change in change in one variable minus the change in

another variable.another variable.c.c. percentage change in one variable divided by percentage change in one variable divided by

the percentage change in another variable.the percentage change in another variable.d.d. percentage change in one variable minus the percentage change in one variable minus the

percentage change in another variable.percentage change in another variable.

1.1. The formula for all elasticities is the The formula for all elasticities is the a.a. change in one variable divided by the change in change in one variable divided by the change in

another variable.another variable.b.b. change in one variable minus the change in change in one variable minus the change in

another variable.another variable.c.c. percentage change in one variable divided by percentage change in one variable divided by

the percentage change in another variable.the percentage change in another variable.d.d. percentage change in one variable minus the percentage change in one variable minus the

percentage change in another variable.percentage change in another variable.



2.2. Which of the following price elasticities of Which of the following price elasticities of demand illustrates elastic demand?demand illustrates elastic demand?

a.a. 0.60.6

b.b. 0.850.85

c.c. 1.01.0

d.d. 1.21.2

2.2. Which of the following price elasticities of Which of the following price elasticities of demand illustrates elastic demand?demand illustrates elastic demand?

a.a. 0.60.6

b.b. 0.850.85

c.c. 1.01.0

d.d. 1.21.2



3.3. The responsiveness of quantity The responsiveness of quantity demanded to changes in pricedemanded to changes in price

a.a. increases over time.increases over time.

b.b. decreases over time.decreases over time.

c.c. is not affected by passage of time.is not affected by passage of time.

d.d. first decreases, but then increases over first decreases, but then increases over time.time.

3.3. The responsiveness of quantity The responsiveness of quantity demanded to changes in pricedemanded to changes in price

a.a. increases over time.increases over time.

b.b. decreases over time.decreases over time.

c.c. is not affected by passage of time.is not affected by passage of time.

d.d. first decreases, but then increases over first decreases, but then increases over time.time.



4.4. If consumers buy 9 gizmos at a price of If consumers buy 9 gizmos at a price of $9, and 10 gizmos at a price of $8, then $9, and 10 gizmos at a price of $8, then demand is demand is

a.a. elastic.elastic.

b.b. unit elastic.unit elastic.

c.c. inelastic.inelastic.

d.d. proto-elasticproto-elastic

4.4. If consumers buy 9 gizmos at a price of If consumers buy 9 gizmos at a price of $9, and 10 gizmos at a price of $8, then $9, and 10 gizmos at a price of $8, then demand is demand is

a.a. elastic.elastic.

b.b. unit elastic.unit elastic.

c.c. inelastic.inelastic.

d.d. proto-elasticproto-elastic



5.5. An income elasticity of demand that is An income elasticity of demand that is positive indicates a good that is positive indicates a good that is

a.a. normal.normal.

b.b. inferior.inferior.

c.c. a substitute.a substitute.

d.d. a complement.a complement.

5.5. An income elasticity of demand that is An income elasticity of demand that is positive indicates a good that is positive indicates a good that is

a.a. normal.normal.

b.b. inferior.inferior.

c.c. a substitute.a substitute.

d.d. a complement.a complement.



6.6. A cross elasticity of demand that is A cross elasticity of demand that is negative indicates thatnegative indicates that

a.a. two goods are substitutes.two goods are substitutes.

b.b. two goods are complements.two goods are complements.

c.c. one good is a substitute and the other is one good is a substitute and the other is a complement.a complement.

d.d. both goods are normal.both goods are normal.

6.6. A cross elasticity of demand that is A cross elasticity of demand that is negative indicates thatnegative indicates that

a.a. two goods are substitutes.two goods are substitutes.

b.b. two goods are complements.two goods are complements.

c.c. one good is a substitute and the other is one good is a substitute and the other is a complement.a complement.

d.d. both goods are normal.both goods are normal.


The End!The End!Next Chapter 16Next Chapter 16

““Consumer Consumer Behavior"Behavior"

©2004 prentice hall publishing ayers/collinge, 1/e 1 chapter 15 “elasticity: measuring...

Documents

cross elasticity of

income elasticity of

price change

variable changes

variable x percentage

variable y percentage

measure of percentage

midpoints formula