ECO 103 EXAM 2 QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026
constant unitary elasticity - Answers when a given percent price change in price leads to an equal
percentage change in quantity demanded or supplied
cross-priced elasticity of demand - Answers the percentage change in the quantity of good A that is
demanded as a result of a percentage change in the price of good B (Exy)
elastic demand - Answers when the elasticity of demand is greater than one, indicating a high
responsiveness of quantity demanded or supplied to changes in price
elastic supply - Answers when the elasticity of either supply is greater than one, indicating a high
responsiveness of quantity demanded or supplied to changes in price
elasticity - Answers an economics concept that measures responsiveness of one variable to changes
in another variable
inelastic demand - Answers when the elasticity of demand is less than one, indicating that a 1 percent
increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice
versa); this indicates a low responsiveness by consumers to price changes
inelastic supply - Answers when the elasticity of supply is less than one, indicating that a 1 percent
increase in price paid to the firm will result in a less than 1 percent increase in production by the firm;
this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)
income elasticity of demand - Answers measures how the quantity demanded of a good changes in
response to a change in consumer income, calculated as the percentage change in quantity
demanded divided by the percentage change in income (Ei)
perfect elasticity - Answers the extremely elastic situation of demand or supply where quantity
changes by an infinite amount in response to any change in price; horizontal in appearance (aka
infinite elasticity)
perfect inelasticity - Answers the highly inelastic case of demand or supply in which a percentage
change in price, no matter how large, results in zero change in the quantity; vertical in appearance
(aka zero elasticity)
price elasticity - Answers the relationship between the percent change in price resulting in a
corresponding percentage change in the quantity demanded or supplied
price elasticity of demand - Answers percentage change in quantity demanded of a good or service
divided the percentage change in price (ED)
price elasticity of supply - Answers percentage change in quantity supplied divided by the percentage
change in price (Es)
unitary elasticity - Answers when the calculated elasticity is equal to one indicating that a change in
the price of the good or service results in a proportional change in the quantity demanded or supplied
behavioral economics - Answers a branch of economics that seeks to enrich the understanding of
decision-making by integrating the insights of psychology and by investigating how given dollar
amounts can mean different things to individuals depending on the situation
budget constraint (or budget line) - Answers shows the possible combinations of two goods that are
affordable given a consumer's limited income
consumer equilibrium - Answers point on the budget line where the consumer gets the most
satisfaction; this occurs when the ratio of the prices of goods is equal to the ratio of the marginal
utilities
diminishing marginal utility - Answers the common pattern that each marginal unit of a good
consumed provides less of an addition to utility than the previous unit
marginal utility - Answers the additional utility provided by one additional unit of consumption
marginal utility per dollar - Answers the additional satisfaction gained from purchasing a good given
the price of the product; MU/Price
total utility - Answers satisfaction derived from consumer choices
additional external cost - Answers additional costs incurred by third parties outside the production
process when a unit of output is produced
biodiversity - Answers the full spectrum of animal and plant genetic material
externality - Answers a market exchange that affects a third party who is outside or "external" to the
exchange; sometimes called a "spillover"
market failure - Answers When the market on its own does not allocate resources efficiently in a way
that balances social costs and benefits; externalities are one example of a market failure
constant unitary elasticity - Answers when a given percent price change in price leads to an equal
percentage change in quantity demanded or supplied
cross-priced elasticity of demand - Answers the percentage change in the quantity of good A that is
demanded as a result of a percentage change in the price of good B (Exy)
elastic demand - Answers when the elasticity of demand is greater than one, indicating a high
responsiveness of quantity demanded or supplied to changes in price
elastic supply - Answers when the elasticity of either supply is greater than one, indicating a high
responsiveness of quantity demanded or supplied to changes in price
elasticity - Answers an economics concept that measures responsiveness of one variable to changes
in another variable
inelastic demand - Answers when the elasticity of demand is less than one, indicating that a 1 percent
increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice
versa); this indicates a low responsiveness by consumers to price changes
inelastic supply - Answers when the elasticity of supply is less than one, indicating that a 1 percent
increase in price paid to the firm will result in a less than 1 percent increase in production by the firm;
this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)
income elasticity of demand - Answers measures how the quantity demanded of a good changes in
response to a change in consumer income, calculated as the percentage change in quantity
demanded divided by the percentage change in income (Ei)
perfect elasticity - Answers the extremely elastic situation of demand or supply where quantity
changes by an infinite amount in response to any change in price; horizontal in appearance (aka
infinite elasticity)
perfect inelasticity - Answers the highly inelastic case of demand or supply in which a percentage
change in price, no matter how large, results in zero change in the quantity; vertical in appearance
(aka zero elasticity)
price elasticity - Answers the relationship between the percent change in price resulting in a
corresponding percentage change in the quantity demanded or supplied
price elasticity of demand - Answers percentage change in quantity demanded of a good or service
divided the percentage change in price (ED)
price elasticity of supply - Answers percentage change in quantity supplied divided by the percentage
change in price (Es)
unitary elasticity - Answers when the calculated elasticity is equal to one indicating that a change in
the price of the good or service results in a proportional change in the quantity demanded or supplied
behavioral economics - Answers a branch of economics that seeks to enrich the understanding of
decision-making by integrating the insights of psychology and by investigating how given dollar
amounts can mean different things to individuals depending on the situation
budget constraint (or budget line) - Answers shows the possible combinations of two goods that are
affordable given a consumer's limited income
consumer equilibrium - Answers point on the budget line where the consumer gets the most
satisfaction; this occurs when the ratio of the prices of goods is equal to the ratio of the marginal
utilities
diminishing marginal utility - Answers the common pattern that each marginal unit of a good
consumed provides less of an addition to utility than the previous unit
marginal utility - Answers the additional utility provided by one additional unit of consumption
marginal utility per dollar - Answers the additional satisfaction gained from purchasing a good given
the price of the product; MU/Price
total utility - Answers satisfaction derived from consumer choices
additional external cost - Answers additional costs incurred by third parties outside the production
process when a unit of output is produced
biodiversity - Answers the full spectrum of animal and plant genetic material
externality - Answers a market exchange that affects a third party who is outside or "external" to the
exchange; sometimes called a "spillover"
market failure - Answers When the market on its own does not allocate resources efficiently in a way
that balances social costs and benefits; externalities are one example of a market failure
