Elasticity

Define the concept of elasticity. Explain how a
higher price and a lower price affect consumers
and producers.

• Elasticity is a term economists use to measure the
  sensitivity or responsiveness to a change in price.
  Typically the percentage change in quantity demanded
  or supplied is divided by the percentage change in
  price. If the quantity change is larger than the price
  change, then consumers or producers are responding
  to the price change. If the quantity change is equal to
  the price change, then consumers or producers have a
  one-to-one sensitivity to the price change (1% change
  in quantity in response to a 1% change in price). If the
  percentage change in the quantity is less than the
  percentage change in the price, then consumers and
  producers are not responding to the price change.

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Distinguish between slope and elasticity on a
linear demand curve.

• Slope and elasticity are related but are different.
  The slope of a linear demand curve is the same at
  each point. Slope is measured by the change in
  the rise (price) divided by the change in the run
  (quantity). Elasticity changes along the linear
  demand curve, because we also include the initial
  price and quantity when calculating elasticity. The
  slope uses changes in price and quantity, while
  the elasticity calculation uses percentage changes
  in price and quantity.

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How is the slope of a linear demand
curve different from its elasticity?

• Along a linear demand curve, slope changes.

• Along a linear demand curve, elasticity stays
  the same.

• Along a linear demand curve, elasticity
  changes.

• There are no differences between slope and
  elasticity.

If the change in price is 20% and the change in
quantity demanded is 10%, what type of
elasticity is present?

• Elastic

• Inelastic

• Unit-Elasic

If the price elasticity of demand for a
product is _____________, it is
considered elastic.

• zero

• greater than one

• equal to one

• less than one

Which of the following statements is
correct when the price elasticity of
demand is inelastic?

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

• Buyers are relatively sensitive to price changes.

• Total revenue decreases if price increases.

• The elasticity coefficient is less than one.

The price of a camera decreases from $200 to
$180, and in response to the price change the
quantity demanded increases from 60 to 65
units. Therefore, demand for cameras in this
price range:

• has declined

• is unit-elastic

• is inelastic

• is elastic

Consumers can be ________________
in their demand for a product when
many substitutes exist.

• inelastic

• perfectly elastic

• unit-elastic

• elastic

The demand for necessities tends to
be:

• inelastic

• elastic

• perfectly inelastic

• unit-elastic

The price of a good falls from $3 to
$2.80 and the quantity demanded
increases from 105 to 125. Using the
midpoint formula, what is the price
elasticity of demand?

• 2.521

• 0.396

• 0.069

• 0.174