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Flashcards: Theory of Consumer Behaviour- 3 48 Flashcards 
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What does the concept of elasticity of demand measure? |
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Elasticity of demand measures how much the quantity demanded of a commodity responds to changes in its own price, while keeping other factors constant. 
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If the quantity demanded for good X increases more than for good Y when prices decrease, good X is considered to be ___ to price changes. |
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More responsive
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True or False: Price elasticity of demand can be negative. |
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True, but we take the absolute value to express it positively.  |
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Fill in the blank: The formula for calculating price elasticity of demand is EP = |ΔQ / ΔP|, where ΔQ is the change in ___ and ΔP is the change in ___. |
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Quantity demanded; price |
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What happens to the price elasticity of demand when the price of a good decreases and the quantity demanded increases? |
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It indicates a higher responsiveness of demand, thus suggesting that the good is elastic.  |
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Riddle: I measure how sensitive demand is to price changes, but I am not a price tag. What am I? |
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Elasticity of demand
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What does a higher absolute value of price elasticity of demand indicate about a product? |
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A higher absolute value indicates that the product is more elastic, meaning that its quantity demanded changes significantly with price changes.
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What is the formula for calculating the price elasticity of demand (EP)? |
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EP = |(Percentage change in quantity demanded) / (Percentage change in price)| |
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Elastic demand is characterized by an elasticity coefficient greater than ___ and indicates that the quantity demanded is ___ responsive to price changes. |
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1; highly  |
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True or False: A perfectly inelastic demand curve is represented by a horizontal line. |
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False; a perfectly inelastic demand curve is represented by a vertical line.  |
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If the price of a luxury good decreases by 10% and the quantity demanded increases by more than 10%, the demand for this good is classified as ___. |
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Elastic |
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Riddle: I can change without a care, my quantity stays the same, no matter the price I declare. What am I? |
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Perfectly inelastic demand  |
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What happens to quantity demanded when the price of a necessary good decreases, if the demand is inelastic? |
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The quantity demanded increases, but by a smaller percentage than the decrease in price.  |
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If the price of wheat drops from 40 paisa to 20 paisa and the demand rises from 1,600 kg to 2,000 kg, what is the price elasticity of demand? |
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EP = 0.5, indicating inelastic demand.  |
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Fill in the blank: If a product has a price elasticity of demand equal to infinity, it is said to have ___ demand. |
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Perfectly elastic |
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How does the concept of unit elasticity of demand manifest in real-world scenarios? |
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Unit elasticity occurs when a percentage change in price results in an equal percentage change in quantity demanded, such as a 10% price drop leading to a 10% increase in quantity demanded.  |
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What is the Total Outlay (Revenue) Method used for in demand measurement? |
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The Total Outlay (Revenue) Method, proposed by Alfred Marshall, assesses elasticity by analyzing the relationship between total revenue (TR) and price changes, calculated as TR = P × Q. |
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Fill in the blank: Elastic demand occurs when a price decrease leads to a ___ in total revenue. |
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Increase |
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True or False: If the price increases and total revenue increases, demand is considered elastic. |
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False. If the price increases and total revenue increases, demand is considered inelastic.  |
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What does the formula EP = dQ/dP represent in the Point Elasticity Method? |
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The formula EP = dQ/dP represents the elasticity of demand at a specific point on the demand curve, showing how quantity demanded changes with respect to price. |
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Riddle: I help you understand how much demand changes with price, but I only do it at one specific point. What am I? |
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Point Elasticity Method  |
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What is the significance of using the Arc Elasticity Method? |
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The Arc Elasticity Method measures elasticity over a range of prices, providing an average elasticity between two points on the demand curve, which is useful for larger changes in price and quantity.  |
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Fill in the blank: Inelastic demand is indicated when the price decreases and total revenue ___ . |
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Decreases |
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Multiple Choice: Which of the following describes Unit Elasticity? |
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A change in price does not affect total revenue, indicating unit elasticity. |
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 Completed! Keep practicing to master all of them. |
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