Why do we need a units-free measure of the responsiveness of the quantity demanded of a good or service to a change in its price?
What will be an ideal response?
The elasticity of demand is a units-free measure. Compare it as a measure of the responsiveness to some other candidate that depends on the units, such as the slope. The slope of the demand curve changes as the units measuring the same quantity of the good change (going from pounds to ounces, for example). The value of the elasticity is independent of the units used to measure the price and quantity of the product. As a result, the elasticity can be compared across the same good when quantity is measured in different units and/or the price is measured in different currencies. The elasticities of different goods also can be compared even though they are measured in different units.
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When income increases from $30,000 a year to $40,000 a year, the quantity demanded of weekend vacations by Sara increases from 2 a year to 5 a year
For Sara, the income elasticity of demand of weekend vacations is ________ and weekend vacations are ________ good. A) 3; a normal B) 4.5 a normal C) 1/3; an inferior D) -4.5; an inferior E) 1/3; a normal
The two broad themes that have driven this text are that ___________ are both evolving.
Fill in the blank(s) with the appropriate word(s).
Refer to the graph shown. A quantity restriction of QR will:
A. create excess demand represented by Q2 ? QR. B. reduce quantity supplied to Q2. C. reduce quantity supplied to QR. D. have no effect on quantity supplied.
In order to sell additional units of their products, competitive firms must
A. Cut their expenses. B. Increase their advertising. C. Lower their price. D. Increase output.