Why do economists measure responsiveness of demand to price in percentage changes rather than in absolute changes?
Different units of measurement will give different values and it could be misleading. Elasticity measures responsiveness on the basis of percentage changes in price and quantity rather than on absolute changes. The elasticity formula solves the units problem because percentages are unaffected by units of measurement. For example, if the government expenditure doubles, it goes up by hundred percent, whether measured in millions or billions of dollars.
You might also like to view...
The two basic markets shown by the simple circular flow model are
A. product and resource. B. capital goods and consumer goods. C. free and controlled. D. household and business.
The average price of ten commodities is $330. If an eleventh commodity whose price is $600 is included in the calculation, the new average is:
A) $330.35. B) $450.25. C) $354.54. D) $254.54.
When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of
A) economic irrationality. B) asymmetric information. C) adverse selection. D) moral hazard.
Do underwriters normally run any kind of risk?
A) They risk being unable to sell the bonds they underwrite. B) They risk receiving a lower price than the commitment price to the bond issuer. C) They risk default on the bonds. D) No, their operations are generally risk-free.