AGB 212 ANSWERS AND QUESTIONS SET A+
✔✔Engel's Curve - ✔✔the relationship between the optimal consumption of a good and
total expenditure or income
✔✔what are the two major economic shifters of a consumer demand curve. - ✔✔1.
changes in income
2. changes in other prices (substitutes)
✔✔Consumer Surplus (CS) - ✔✔the amount a buyer is willing to pay for a good minus
the amount the buyer actually pays for it
✔✔consumer surplus on a graph - ✔✔The area under the demand curve and above the
market price is equal to total consumer surplus
✔✔market demand curve - ✔✔the demand curve that shows the quantities demanded
by everyone who is interested in purchasing the product
✔✔price elasticity of demand - ✔✔percent change in quantity demanded/percent
change in price
✔✔elasticity demand equation - ✔✔% change in quantity demanded / % change in
price
✔✔total revenue - ✔✔Price x Quantity
✔✔inelastic demand - ✔✔price raise the revenue goes up. lower price revenue goes
down.
✔✔elastic demand - ✔✔rise price, revenue goes downlower price, revenue goes up
✔✔elastic= - ✔✔high change
✔✔Inelastic= - ✔✔low change
, ✔✔what happens when 0 customers stop buying when the price rises? - ✔✔perfectly
inelastic demand
✔✔perfectly inelastic - ✔✔0
✔✔perfectly elastic demand curve - ✔✔a horizontal line reflecting a situation in which
any price increase reduces quantity demanded to zero; the elasticity has an absolute
value of infinity
✔✔what determines if the demand is high or low? - ✔✔1. number and closeness of
substitutes
2.percent of income spent on the good
3. time
✔✔high elasticity - ✔✔demand driven by price
furniture
motor vehicle
✔✔cross price elasticity - ✔✔the percentage change in demand for product A that
occurs in response to a percentage change in price of product B
✔✔negative and positive income elasticity - ✔✔negative: people buy less than when
their income goes up- inferior good
positive: means people buy more the good when their income goes up or less when
their income goes down- normal good
✔✔what does the income elasticity number tell you - ✔✔it is the percent change in
purchases if there is a 1 percent rise in income
✔✔Sales of high end liquors have ________________ during the pandemic -
✔✔Increased
✔✔If product X has cross-price elasticity of demand with product Y of 1.3, this means -
✔✔If the price of product Y changes by 1%, sales of product X will change by 1.3% in
the same direction
✔✔A good is called an "inferior" good in the economic sense if - ✔✔Sales decline as
income increases
✔✔The table below shows the Own Price Elasticity for several products.
How would you classify these products? - ✔✔They are all inelastic with respect to price
✔✔Engel's Curve - ✔✔the relationship between the optimal consumption of a good and
total expenditure or income
✔✔what are the two major economic shifters of a consumer demand curve. - ✔✔1.
changes in income
2. changes in other prices (substitutes)
✔✔Consumer Surplus (CS) - ✔✔the amount a buyer is willing to pay for a good minus
the amount the buyer actually pays for it
✔✔consumer surplus on a graph - ✔✔The area under the demand curve and above the
market price is equal to total consumer surplus
✔✔market demand curve - ✔✔the demand curve that shows the quantities demanded
by everyone who is interested in purchasing the product
✔✔price elasticity of demand - ✔✔percent change in quantity demanded/percent
change in price
✔✔elasticity demand equation - ✔✔% change in quantity demanded / % change in
price
✔✔total revenue - ✔✔Price x Quantity
✔✔inelastic demand - ✔✔price raise the revenue goes up. lower price revenue goes
down.
✔✔elastic demand - ✔✔rise price, revenue goes downlower price, revenue goes up
✔✔elastic= - ✔✔high change
✔✔Inelastic= - ✔✔low change
, ✔✔what happens when 0 customers stop buying when the price rises? - ✔✔perfectly
inelastic demand
✔✔perfectly inelastic - ✔✔0
✔✔perfectly elastic demand curve - ✔✔a horizontal line reflecting a situation in which
any price increase reduces quantity demanded to zero; the elasticity has an absolute
value of infinity
✔✔what determines if the demand is high or low? - ✔✔1. number and closeness of
substitutes
2.percent of income spent on the good
3. time
✔✔high elasticity - ✔✔demand driven by price
furniture
motor vehicle
✔✔cross price elasticity - ✔✔the percentage change in demand for product A that
occurs in response to a percentage change in price of product B
✔✔negative and positive income elasticity - ✔✔negative: people buy less than when
their income goes up- inferior good
positive: means people buy more the good when their income goes up or less when
their income goes down- normal good
✔✔what does the income elasticity number tell you - ✔✔it is the percent change in
purchases if there is a 1 percent rise in income
✔✔Sales of high end liquors have ________________ during the pandemic -
✔✔Increased
✔✔If product X has cross-price elasticity of demand with product Y of 1.3, this means -
✔✔If the price of product Y changes by 1%, sales of product X will change by 1.3% in
the same direction
✔✔A good is called an "inferior" good in the economic sense if - ✔✔Sales decline as
income increases
✔✔The table below shows the Own Price Elasticity for several products.
How would you classify these products? - ✔✔They are all inelastic with respect to price
