Principles of Microeconomics – Chapter 4 : Elasticity

30 fill-in-the-blank flashcards covering definitions, formulas, determinants, graphical interpretation, revenue effects, and other elasticity measures from Chapter 4.

Price elasticity of demand measures how much the __ changes when price changes.

quantity demanded

The symbol commonly used for the price elasticity coefficient is __.

ε (epsilon)

If εp > 1, demand is said to be __.

elastic

If εp < 1, demand is __.

inelastic

When the percentage change in quantity demanded equals the percentage change in price, demand is and εp equals .

unitary; 1

The basic formula for price elasticity of demand is εp = %ΔQd / __.

%ΔP

One key determinant of price elasticity is the number of available __.

substitutes

Products that take a large share of household __ tend to have more elastic demand.

income (budget)

Over longer __, demand usually becomes more elastic.

time periods

For fresh tomatoes (ε≈4.60), the demand is highly __.

elastic

Household electricity (ε≈0.13) is an example of a product with __ demand.

inelastic

When demand is elastic and price falls, total revenue (TR) will __.

rise

When demand is inelastic and price rises, TR will __.

rise

On a straight-line demand curve, the upper half is and the lower half is .

elastic; inelastic

A relatively steep demand curve is mostly __.

inelastic

A relatively flat (shallow) demand curve is mostly __.

elastic

With perfectly __ demand, the elasticity coefficient equals ∞.

elastic

With perfectly __ demand, the elasticity coefficient equals 0.

inelastic

In the market period, supply is __ inelastic.

perfectly

Over the long run, supply becomes more __.

elastic

Income elasticity greater than 1 identifies a __ good.

luxury (income-elastic normal)

Income elasticity between 0 and 1 indicates a __ necessity.

normal

A negative income elasticity characterises an __ good.

inferior

A positive cross-price elasticity implies the two goods are __.

substitutes

A negative cross-price elasticity implies the goods are __.

complements

Governments impose “sin taxes” mainly on goods with __ demand to raise revenue.

inelastic

When supply is perfectly inelastic, a rightward shift in demand results only in a change in __.

price

For a product with εp = 1, a price increase will leave total revenue __.

unchanged

The elasticity of supply formula is εs = %ΔQs / __.

%ΔP

A key reason a good harvest may hurt farmers is that the demand for many crops is __, so TR falls when supply rises.

inelastic