CHAPTER 4 Name:
SECTION 3 Date:
Hour:
STUDY GUIDE
1) Define the following:
- elasticity -
- demand elasticity –
- elastic -
- inelastic –
- unit elastic -
- technical -
- adequate –
2) What does elasticity generally measure?
responsiveness
3) What kind of relationship is elasticity in economics?
cause and effect
5) Why do consumers buy fresh vegetables in the summer time and frozen or canned vegetables in the winter time? in the summer time the price of fresh vegetables decreases and in the winter time they increase
6) Why would quantity demanded stay relatively the same for an inelastic good despite a change in price? If the good is a necessity or a need then the demand will always be there for the good
7) Would the quantity demanded of table salt increase, decrease, or stay the same if its price were to increase or decrease? Why or why not? It would stay the same because table salt is inelastic and consumers use a small part of their budget to buy so much table salt, so regardless of the price the demand for table salt would stay the same.
8) Why are examples of unit elasticity difficult to find?
demand for most products is either elastic or inelastic
9) What is the formula used to find total expenditures? price x quantity demanded
10) Why would a new business adjust prices a number of times for a new product that comes out?
To see how customers would react to new prices and to find out the product’s elasticity
11) What are the three questions to ask for determinants of demand elasticity?
1) can the purchase be delayed?
2) are adequate substitutes available?
3) does the purchase use a large portion of income?
12) Explain the answers for each of these three questions from #11
1) some purchases cannot be delayed which makes the product inelastic, however, others can be delayed
2) if adequate substitutes are available, consumers can switch back and forth between the product and its substitute to take advantage of the best price
3) if the amount of income is large, then demand tends to be elastic. If the amount of income is small, demand tends to be inelastic.
13) Create a demand curve for elastic demand using the following data (BE SURE TO LABEL)
Expenditure: $8 = $4 per 2 units
Expenditure: $6 = $2 per 3 units
14) Create a demand curve for inelastic demand using the following data (BE SURE TO LABEL)
Expenditure: $7 = $2 per 3.5 units
Expenditure: $6 = $1.5 per 4 units
15) Create a demand curve for unit elastic demand using the following data (BE SURE TO LABEL)
Expenditure: $8 = $2 per 4 units
Expenditure: $8 = $4 per 2 units