1. Define the price elasticity of demand and the income elasticity of demand.
2. List and explain the four determinants of the price elasticity of demand discussed in the chapter.
3. What is the main advantage of using the midpoint method for calculating elasticity?
•4. If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals 0, is demand perfectly elastic or perfectly inelastic?
5. On a supply-and-demand diagram, show equilibrium price, equilibrium quantity, and the total revenue received by producers.
time horizon under consideration. In most markets, supply is more elastic in the long run than in the short run.
• The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. If quantity-supplied moves proportionately less than the price, then the elasticity is less than 1. and supply is said to be inelastic- If quantity supplied moves proportionately more than the price, then the elasticity is greater than 1, and supply is said to be elastic.
• The tools of supply and demand can be applied in many different kinds of markets. This chapter uses them to analyze the market for wheat, the market for oil, and the market for illegal drugs.
price elasticity of supply, p. 99
6. If demand is elastic, how will an increase in price change total revenue? hxplain.
7. What do we call a good whose income elasticity-is less than 0?
How is the price elasticity of supply calculated? Explain what it measures.
9. What is the price elasticity of supply of Picasso paintings?
10. Is the price elasticity of supply usually larger in the short run or in the long run? Why?
11. How did elasticity help explain why drug interdiction could reduce the supply of drugs, yet possibly increase drug-related crime?
income elasticity of demand,/?. 97 cross-price elasticity of demand, p. 99
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