1
Q
What is price elasticity of demand?
A
A measure of how responsive quantity demanded is to price changes.
2
Q
Formula for price elasticity of demand?
A
%ΔQD / %ΔP
3
Q
When is demand elastic?
A
When |η| > 1
4
Q
When is demand inelastic?
A
When |η| < 1
5
Q
What happens to total revenue if demand is elastic and price falls?
A
Total revenue increases.
6
Q
Name two factors affecting elasticity.
A
Availability of substitutes and time horizon.
7
Q
What is income elasticity of demand?
A
Responsiveness of demand to income changes.
8
Q
What does negative income elasticity indicate?
A
An inferior good.
9
Q
What is cross-price elasticity?
A
Responsiveness of demand for one good to price changes of another good.
