Demand is described as inelastic when the absolute value of the price elasticity of demand is less than 1.
Missing Word
inelastic
Inelastic demand means quantity demanded changes by a smaller percentage than price. Values below 1 fit this category, while values above 1 are elastic.
Category: Interpreting Elasticity
Question 2
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 ratio of the two percentage changes is greater than 1.
Category: Interpreting Elasticity
Question 3
Cars and gasoline are a pair of complements, goods used together, so a higher price for one lowers the quantity demanded of the other.
Missing Word
complements
Complements are goods consumed together, so they have a negative cross-price elasticity of demand. When gasoline becomes more expensive, driving costs more, and buyers purchase fewer cars as well as less gasoline.
Category: Other Elasticities
Question 4
A supply curve with constant unitary elasticity is a straight line that passes through the origin.
Missing Word
origin
Any straight-line supply curve through the origin has an elasticity of 1 at every point, because each percentage change in price is matched by the same percentage change in quantity.
Category: Polar Cases
Question 5
A demand curve along which quantity demanded never changes, whatever the price, is drawn as a vertical line.
Missing Word
vertical
A vertical demand curve is perfectly inelastic, with an elasticity of zero, because price changes produce no change in quantity demanded.
Category: Polar Cases
Question 6
Written as a fraction, price elasticity of demand has the percentage change in quantity demanded as its numerator and the percentage change in price as its denominator.
Missing Word
denominator
Price elasticity of demand divides the percentage change in quantity demanded by the percentage change in price, so the quantity term is the top of the fraction, the numerator, and the price term is the bottom, the denominator.
Category: Midpoint Method
Question 7
Because price and quantity demanded move in opposite directions, the raw calculation of price elasticity of demand gives a negative number.
Missing Word
negative
A higher price lowers quantity demanded, so the two percentage changes have opposite signs and their ratio is negative. Economists usually report the absolute value instead.
Category: Midpoint Method
Question 8
Unlike elasticity, the slope of a straight-line demand curve compares unit changes in price and quantity, so it stays constant along the whole line.
Missing Word
slope
Slope is the rise over the run, measured in units such as dollars per item. Elasticity compares percentage changes instead, which is why it varies along a straight-line demand curve even though the slope does not.
Category: Interpreting Elasticity
Question 9
Tax incidence describes how the burden of a tax is divided between buyers and sellers.
Missing Word
incidence
Tax incidence is the sharing of a tax burden between the two sides of a market. The side with the less elastic curve bears the larger share.
Category: Tax Incidence
Question 10
The elasticity that compares the percentage change in quantity demanded with the percentage change in buyers' earnings is the income elasticity of demand.
Missing Word
income
Income elasticity of demand measures how demand responds to a change in income. A positive value indicates a normal good and a negative value an inferior good.
Category: Other Elasticities
Question 11
A good whose demand falls when buyers' earnings rise, such as cheap wine, is called an inferior good.
Missing Word
inferior
An inferior good has a negative income elasticity of demand, so a rise in earnings shifts its demand curve to the left as buyers move to goods they prefer.
Category: Other Elasticities
Question 12
A good whose demand rises when buyers' earnings rise, the category that includes most goods, is called a normal good.
Missing Word
normal
A normal good has a positive income elasticity of demand, so higher earnings shift its demand curve to the right. Most goods fall into this category.
Category: Other Elasticities
Question 13
Goods such as coffee and tea, for which a higher price of one raises the quantity demanded of the other, are called substitutes.
Missing Word
substitutes
Substitutes are goods that can replace each other, so they have a positive cross-price elasticity of demand: a price increase for one sends buyers toward the other.
Category: Other Elasticities
Question 14
The wage elasticity of labor supply is the percentage change in the number of hours worked divided by the percentage change in the wage.
Missing Word
hours
Labor supply is measured as the time people choose to work, so the wage elasticity compares the percentage change in hours worked with the percentage change in the wage.
Category: Other Elasticities
Question 15
The percentage change in the amount households save divided by the percentage change in the interest rate is called the elasticity of savings.
Missing Word
savings
The elasticity of savings describes the shape of the supply curve for financial capital, showing how much more households save when the return on saving rises.
Category: Other Elasticities