Elasticity of Demand

Elasticity of Demand is a measure of how much the quantity demanded of a good ________ to a change in price for that good.

• multiplies

• responds

• increases

• remains

The Elasticity of Demand (sometimes called Price Elasticity of Demand or PED) is calculated as the _______ change in Qd divided by the _______ change in price.

(a)  

Demand for a good is said to be elastic if the percentage change in Qd is larger than the percentage change in price.

• True

• False

Demand is said to be inelastic if the value (from the formula %change in Qd divided by the %change in P) is greater than 1.

• True

• False

Select all of the reasons why a good might be more elastic.

• If there are many substitutes for the good.

• If it is a luxury.

• If it is a necessity.

• If the market is narrowly defined.

• If the time span is short.

Because the midpoint method gives the same answer regardless of the direction of change, it is often used when calculating the price elasticity of demand between two points.

• True

• False

If you calculate the Elasticity of Demand as being 1.5 it means that the change in price caused a change in Qd that was _____ times as large

• 15

• 10

• 1.5

• unknown

Good "X" has an elasticity value of 0.75. If there was a 30% decrease in Qd that means there must have been a ____ ______ in price.

• 75% increase

• 40 % decrease

• 40% increase

• 22.5% decrease

The price of potato chips increased by 11% which caused an 11% decrease in Qd for them. In this case potato chips could be described as being _____ ________.

(a)  

100 people currently want Good "Y." If the price increases and 100 people still want Good "Y" we can call the elasticity of demand for that good...

• Perfectly inelastic because the Qd didn't change.

• Perfectly elastic because the Qd didn't change.

• Unit elastic because the Qd didn't change.

• Elastic because 100 is greater than 1.