Economics
Elasticity of Demand and Supply Study Guide
Name__________________
Directions: Please read pages 90-96 and pages 104-106 and respond to the following questions thoroughly and accurately.
1. What does the Law of Demand state? How does this relate to elasticity?
2. In your own words, what does elasticity of demand measure?
3. Please define elastic demand.
4. Please define inelastic demand.
5. What is the equation to compute the elasticity of demand?
6. The elasticity of demand varies at every price level. When prices are low, a change in the price of a magazine will result in a small
or large (circle one) change in the quantity demanded at every price level and the demand for the good is described as elastic or
inelastic (circle one). However, at high price ranges, a change in the price of a product will result in a small or large (circle one)
change in the quantity demanded and the demand for the good is described as elastic or inelastic (circle one).
7. If the elasticity of demand > 1, then the demand is __________________________.
If the elasticity of demand < 1, then the demand is __________________________.
If the elasticity of demand = 1, then the demand is __________________________.
8. Please list and describe the 4 factors of elasticity of demand.
9. What is the equation to compute a percentage change in price? If P1 = $4 and P2 = $5, what is the percentage change in price?
10. Write out the equation to compute percentage change in the quantity demanded. If the increase in price causes the quantity
demanded to decrease from Q1 = 100 to Q2 = 50, what is the percentage change in the quantity equal to?
11. Calculate the elasticity of demand for this good using the answers from questions 9 and 10. Remember to ignore the negative
number. Is the demand for this good elastic or inelastic in the price range?
12. Calculate the Elasticity of Demand for this data: P1 = $5 and P2 = $10. Q1 = 40 units and Q2 = 36 units. Is the demand for this
good elastic or inelastic in this price range?
13. Describe the relationship between price and total revenue for elastic demand. (In other words, if the price increases, what
happens to the total revenue?)
14. Describe the relationship between price and total revenue for inelastic demand.
15. According to the text, an understanding of elasticity concepts is useful for whom? Explain how they use elasticity concepts.
16. List 2 examples of elastic good or services you have purchased and 2 examples of inelastic goods or services you have
purchased.
Go to pages 104-106
17. What does the elasticity of supply measure?
18. What primarily determines if the supply of a product is elastic or inelastic?
19. How does a supplier of a good react to an increase in price in the short run? In the long run?