/
Price Elasticity Essentials
Save to my account
Sign up
Price Elasticity Essentials
Price Elasticity Essentials
Study
1
Question
What do prices indicate to producers and consumers in a market economy?
Page 1
Answer
Relative scarcity of resources and products
2
Question
What is elasticity in economics?
Page 1
Answer
A measure of responsiveness
3
Question
What does a firm's success often depend on regarding its product?
Page 1
Answer
Knowledge about the demand for its product
4
Question
What does price elasticity of demand measure?
Page 1
Answer
How responsive consumers are to a change in price, standardized
5
Question
How is price elasticity of demand calculated?
Page 1
Answer
Percentage change in quantity demanded divided by percentage change in price
6
Question
Why use the average of initial and new price for elasticity calculation?
Page 1
Answer
To get the same result regardless of direction of price change
7
Question
In the example, what is the base price for elasticity calculation between $1.80 and $1.20?
Page 1
Answer
$1.50
8
Question
What is the percentage change in price from $1.80 to $1.20 using the base?
Page 1
Answer
-40%
9
Question
What is the price elasticity formula?
Page 1
Answer
% change in quantity demanded / % change in price
10
Question
Why do elasticities have no units?
Page 1
Answer
Because they use percentage changes
11
Question
How is the elasticity value typically viewed?
Page 1
Answer
As a positive or absolute number
12
Question
What are the three categories of price elasticity of demand?
Page 1
Answer
Inelastic (0-1), unit elastic (1), elastic (>1)
13
Question
What indicates inelastic demand?
Page 1
Answer
% change in quantity demanded less than % change in price (value 0-1)
14
Question
What is unit elastic demand?
Page 1
Answer
% change in quantity equals % change in price (absolute value 1)
15
Question
What indicates elastic demand?
Page 2
Answer
% change in quantity demanded exceeds % change in price (value >1)
16
Question
Why is knowing price elasticity important to producers?
Page 2
Answer
It indicates how price changes affect total revenue
17
Question
What is total revenue (TR)?
Page 2
Answer
Price (P) times quantity demanded (Q)
18
Question
What is the formula for total revenue?
Page 2
Answer
TR = P × Q
19
Question
When price decreases, what happens to quantity demanded?
Page 2
Answer
It increases
20
Question
How can a price decrease increase total revenue?
Page 2
Answer
If increased quantity offsets the lower price per unit
21
Question
In elastic demand, what happens to total revenue when price decreases?
Page 2
Answer
Total revenue rises
22
Question
In unit elastic demand, what happens to total revenue when price changes?
Page 2
Answer
Total revenue remains unchanged
23
Question
In inelastic demand, what happens to total revenue when price decreases?
Page 2
Answer
Total revenue falls
24
Question
What is a linear demand curve?
Page 2
Answer
A straight-line demand curve with constant slope
25
Question
How does elasticity vary along a linear demand curve?
Page 2
Answer
It varies; more elastic at high prices, less at low prices
26
Question
Is slope the same as price elasticity of demand?
Page 2
Answer
No
27
Question
Where on a linear demand curve is demand unit elastic?
Page 2
Answer
At the midpoint
28
Question
Why might producers refuse to reduce price in inelastic demand?
Page 2
Answer
It decreases total revenue
29
Question
What is the relationship between price decline and total revenue?
Page 2
Answer
Increases TR if elastic or unit elastic; decreases if inelastic
30
Question
What are constant elasticity demand curves?
Page 3
Answer
Curves where elasticity is the same at every point