UGBA 101A Midterm 1
steep supply/demand curves - correct answer large changes in price/small changes in quantity
shallow supply/demand curves - correct answer small changes in price/large changes in quantity
elasticity - correct answer
price elasticity of demand formula - correct answer E^D=%∆Q^D/%∆P
price elasticity of supply formula - correct answer E^S=%∆Q^S/%∆P
what happens when PED is high - correct answer small changes in price result in large changes in
quantity demanded
what affects PED - correct answer 1. availability of close substitutes
2. breadth of the market
3. type of product (necessity or luxury item)
4. percentage of income spent on good
5. time horizon of the analysis
what affects PES - correct answer 1. ease at which production capacity can be expanded
2. time horizon of the analysis
Inelastic equation - correct answer demand is inelastic if: 0<|E^D|<1
Unit elastic equation - correct answer Demand is unit elastic if |E^D|=1
, Elastic equation - correct answer Demand is elastic if |E^D|>1
Perfectly elastic equation - correct answer Demand is perfectly elastic if |E^D|=inf
Perfectly inelastic equation - correct answer Demand is perfectly inelastic if |E^D|=0
other way to write elasticity equation - correct answer ∆Q/Q / ∆P/P = ∆Q/∆P * P/Q = 1/slope * P/Q
example of perfectly inelastic demand item - correct answer life-saving drugs
example of perfectly elastic demand item - correct answer commodity crops
Income Elasticity of Demand - correct answer E^DsubI = %∆Q^D/%∆I
Income Elasticity of Demand sign - correct answer E^DsubI<0 for inferior goods (consumption decreases
with increases in income)
E^DsubI>0 for normal goods (consumption increases with increases in income)
Income Elasticity of Demand for normal goods - correct answer 1. necessities: 0<E^DsubI<1
2. luxury goods: E^DsubI>1
Cross-price elasticity of demand - correct answer percentage change in quantity demanded of one good
divided by percent change in price of another good
Cross-price elasticity of demand equation - correct answer E^DsubXY = %∆QsubX/%PsubY
sign of cross-price elasticity - correct answer 1. complements: E^DsubXY<0: consumption of good X
decreases with an increase in the price of a related
2. substitutes: E^DsubXY>0: consumption of good X increases as price of Y goes up
3. unrelated goods: E^DsubXY=0
steep supply/demand curves - correct answer large changes in price/small changes in quantity
shallow supply/demand curves - correct answer small changes in price/large changes in quantity
elasticity - correct answer
price elasticity of demand formula - correct answer E^D=%∆Q^D/%∆P
price elasticity of supply formula - correct answer E^S=%∆Q^S/%∆P
what happens when PED is high - correct answer small changes in price result in large changes in
quantity demanded
what affects PED - correct answer 1. availability of close substitutes
2. breadth of the market
3. type of product (necessity or luxury item)
4. percentage of income spent on good
5. time horizon of the analysis
what affects PES - correct answer 1. ease at which production capacity can be expanded
2. time horizon of the analysis
Inelastic equation - correct answer demand is inelastic if: 0<|E^D|<1
Unit elastic equation - correct answer Demand is unit elastic if |E^D|=1
, Elastic equation - correct answer Demand is elastic if |E^D|>1
Perfectly elastic equation - correct answer Demand is perfectly elastic if |E^D|=inf
Perfectly inelastic equation - correct answer Demand is perfectly inelastic if |E^D|=0
other way to write elasticity equation - correct answer ∆Q/Q / ∆P/P = ∆Q/∆P * P/Q = 1/slope * P/Q
example of perfectly inelastic demand item - correct answer life-saving drugs
example of perfectly elastic demand item - correct answer commodity crops
Income Elasticity of Demand - correct answer E^DsubI = %∆Q^D/%∆I
Income Elasticity of Demand sign - correct answer E^DsubI<0 for inferior goods (consumption decreases
with increases in income)
E^DsubI>0 for normal goods (consumption increases with increases in income)
Income Elasticity of Demand for normal goods - correct answer 1. necessities: 0<E^DsubI<1
2. luxury goods: E^DsubI>1
Cross-price elasticity of demand - correct answer percentage change in quantity demanded of one good
divided by percent change in price of another good
Cross-price elasticity of demand equation - correct answer E^DsubXY = %∆QsubX/%PsubY
sign of cross-price elasticity - correct answer 1. complements: E^DsubXY<0: consumption of good X
decreases with an increase in the price of a related
2. substitutes: E^DsubXY>0: consumption of good X increases as price of Y goes up
3. unrelated goods: E^DsubXY=0
