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Economics

List and explain the determinants of Price elasticity of demand

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Elastic And Its Application

Section: Chapter Questions

Problem 2QR: List and explain the four determinants of the price elasticity of demand discussed in the chapter.

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Question

1. List and explain the determinants of Price elasticity of demand

2. List and explain the determinants of Price elasticity of supply

3. How to calculate the income elasticity

4. How to calculate the cross price elasticity

5. Differentiate between normal goods and inferior goods

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(Other Elasticity Measures) Complete each of the following sentences: a. The income elasticity of demand measures, for a given price, the __________ in quantity demanded divided by the __________ income from which it resulted. b. If a decrease in the price of one good causes a decrease in demand for another good, the two goods are __________. c. If the value of the cross-price elasticity of demand between two goods is approximately zero, they are considered __________.
A price change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic? Explain.
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(Price Elasticity of Supply) Calculate the price elasticity of supply for each of the following combinations of price and quantity supplied. In each case, determine whether supply is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. a. Price falls from $2.25 to $1.75; quantity supplied falls from 600 units to 400 units. b. Price falls from $2.25 to $1.75; quantity supplied falls from 600 units to 500 units. c. Price falls from $2.25 to $1.75; quantity supplied remains at 600 units. d. Price increases from $1.75 to $2.25, quantity supplied increases from 466.67 units to 600 units.