Chapter 5Questions for Review

Chapter 5Questions for Review - Chapter5QuestionsforReview...

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Chapter 5Questions for Review 1. The price elasticity of demand measures how much quantity demanded responds to  a change in price. The income elasticity of demand measures how much quantity  demanded responds to changes in consumer income. 2. The determinants of the price elasticity of demand include how available close  substitutes are, whether the good is a necessity or a luxury, how broadly defined the  market is, and the time horizon. Luxury goods have greater price elasticities than  necessities, goods with close substitutes have greater elasticities, goods in more  narrowly defined markets have greater elasticities, and the elasticity of demand is  greater the longer the time horizon. 3. The main advantage of using the mid-point formula is that it uses a constant base  whether the change in price or quantity demanded is an increase or a decrease. 4.
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Chapter 5Questions for Review - Chapter5QuestionsforReview...

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