Demand is called elastic when the percentage change in quantity demanded is larger than the percentage change in price.
Missing Word
elastic
Elastic demand means buyers respond strongly to price, so the absolute value of the price elasticity of demand is greater than 1. Quantity moves by a larger percentage than price.
Category: Measuring Elasticity
Question 2
Supply is called inelastic when the quantity supplied changes by a smaller percentage than the price does.
Missing Word
inelastic
Inelastic supply means producers respond weakly to price, so the price elasticity of supply is less than 1. Goods whose inputs are hard to expand quickly often have inelastic supply.
Category: Measuring Elasticity
Question 3
A firm's total revenue is the price of its product multiplied by the quantity it sells.
Missing Word
multiplied
Total revenue is price times quantity sold, so $4 multiplied by 300 units is $1,200. Because a price change moves both terms in opposite directions along a demand curve, elasticity decides whether total revenue rises or falls when price changes.
Category: Elasticity and Revenue
Question 4
A good that consumers buy less of as their incomes rise is called an inferior good.
Missing Word
inferior
An inferior good has a negative income elasticity of demand, so a rise in income shifts its demand curve to the left. People switch to goods they prefer once they can afford them.
Category: Other Elasticities
Question 5
Goods such as coffee and sugar, where a higher price for one lowers the quantity demanded of the other, are called complements.
Missing Word
complements
Complements are goods used together, so a price rise for one reduces purchases of both. Their cross-price elasticity of demand is negative.
Category: Other Elasticities
Question 6
When cheaper plane tickets lead travelers to buy fewer train tickets, the two goods are substitutes.
Missing Word
substitutes
Substitutes are goods that can replace each other, so a lower price for one draws buyers away from the other. Their cross-price elasticity of demand is positive.
Category: Other Elasticities
Question 7
When the quantity supplied stays the same no matter how much the price changes, the supply curve is a vertical line.
Missing Word
vertical
A vertical supply curve shows perfectly inelastic supply, with an elasticity of zero. Goods whose inputs are fixed, such as housing in a prime location, come close to this case.
Category: Polar Cases
Question 8
A supply curve with constant unitary elasticity is a straight line drawn from the origin.
Missing Word
origin
On a straight supply line that starts at the origin, each percentage change in price is matched by the same percentage change in quantity. That keeps the elasticity of supply equal to 1 at every point.
Category: Polar Cases
Question 9
Along a straight-line demand curve, the slope, measured as rise over run, is the same at every point even though the price elasticity is not.
Missing Word
slope
Slope measures changes in units, while elasticity measures changes in percentages. On a straight line the slope never changes, but elasticity is higher at high prices and lower at low prices.
Category: Measuring Elasticity
Question 10
When buyers purchase more of a good as their incomes rise, the income elasticity of demand for that good is positive.
Missing Word
positive
A positive income elasticity means quantity demanded moves in the same direction as income. Goods with positive income elasticity are normal goods.
Category: Other Elasticities
Question 11
The elasticity of labor supply measures how the number of hours people choose to work responds to a percentage change in the wage.
Missing Word
labor
The elasticity of labor supply is the percentage change in the quantity of labor supplied, usually hours worked, divided by the percentage change in the wage. It describes the shape of the labor supply curve: a high value means hours respond strongly to pay.
Category: Other Elasticities
Question 12
Because price and quantity demanded move in opposite directions, a price elasticity of demand calculated directly from the data, without taking its absolute value, is a negative number.
Missing Word
negative
A price increase is a positive percentage change and the resulting fall in quantity demanded is a negative one, so their ratio is below zero. Economists usually report the absolute value and compare it with 1 to judge whether demand is elastic or inelastic.
Category: Measuring Elasticity
Question 13
The elasticity of savings divides the percentage change in the quantity of financial savings by the percentage change in the interest rate.
Missing Word
interest
The interest rate is the return savers earn, so the elasticity of savings measures how responsive saving is to that return. It describes the shape of the supply curve for financial capital.
Category: Other Elasticities
Question 14
The sign of a cross-price elasticity of demand, plus or minus, shows how the two goods are related to each other.
Missing Word
sign
A plus sign means the goods are substitutes and a minus sign means they are complements. The size of the number shows how strongly purchases of one good respond to the other's price.
Category: Other Elasticities
Question 15
Price elasticities tend to be larger in the long run because buyers and sellers have more time, measured in months or years, to adjust.
Missing Word
time
Given more time, consumers can buy more efficient cars or appliances and firms can build new plants. Quantities therefore respond more to price over longer periods.
Category: Short and Long Run