18 flashcards · Shared on 19 August 2026 by AtomAI Library
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What does income elasticity of demand measure?
The responsiveness of quantity demanded to a change in consumer income
What does income elasticity of demand measure?
The responsiveness of quantity demanded to a change in consumer income
A positive cross elasticity of demand usually indicates that two goods are:
Substitutes
What does price elasticity of supply measure?
The responsiveness of quantity supplied to a change in the product's price
How is price elasticity of demand calculated?
Percentage change in quantity demanded divided by percentage change in price
Which condition is most likely to make supply more price elastic?
Firms have substantial spare capacity
Cross elasticity of demand measures the responsiveness of demand for one good to:
A change in the price of another good
A 5% rise in price causes quantity supplied to rise by 15%. What is the price elasticity of supply?
3
Why is supply commonly more price elastic in the long run than in the short run?
Firms have time to expand capacity and adjust inputs
What does price elasticity of demand measure?
The responsiveness of quantity demanded to a change in price
Why does demand often become more price elastic over time?
Consumers have more time to find substitutes or change their behaviour
Which factor generally makes demand for a product more price elastic?
The product has many close substitutes
Demand is price elastic when the absolute value of price elasticity of demand is:
Greater than 1
What characterises perfectly inelastic demand?
Quantity demanded does not change when price changes
What does a negative income elasticity of demand indicate?
The good is an inferior good
A product's price rises by 10%, and quantity demanded falls by 20%. What is the absolute value of its price elasticity of demand?
2
What characterises perfectly inelastic supply?
Quantity supplied does not change when price changes
If demand is price elastic, what will usually happen to a firm's total revenue when it lowers price, other things being equal?
Total revenue will rise
If demand is price inelastic, what will usually happen to total revenue when price rises, other things being equal?
Total revenue will rise because quantity demanded falls proportionately less