ECON 202 Exam 2 Questions with Complete Correct Answers | Grade A+

Elasticity Ans: A measure of how much one economic variable responds to changes in another economic variable. Price elasticity of demand Ans: The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price. Equation for Measuring the Price Elasticity of Demand Ans: (Percentage change in quantity demanded) / (Percentage Change in Price) Price Elasticity of demand is always __________. Ans: negative Midpoint Formula for Price elasticity of demand Ans: [(Q2-Q1)/[(Q1+Q2)/2]] / [(P2-P1)/[(P1+P2)/2]] Elastic demand Ans: price elasticity > 1 (in absolute value) i.e. % change in quantity > % change in price Inelastic Demand Ans: price elasticity < 1 (in absolute value) i.e. % change in quantity < % change in price Unit-Elastic demand Ans: price elasticity = 1 (in absolute value) i.e. % change in quantity = % change in price Perfectly inelastic demand Ans: The case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero. Demand slope = 0( vertical demand slope) Perfectly elastic demand Ans: the case where the quantity demanded is infinitely resposive to price, and the price elasticity of demand equals infinity. (horizontal demand slope) Key determinants of the price elasticity of demand Ans: availability of close substitutes Passage of time Luxuries versus necessitie