1. Define the price elasticity of demand and the price elasticity of supply. What is the difference between elastic and inelastic demand?
2. Both the slope of the demand curve and the elasticity of demand are measures of how consumers alter their quantities demanded in response to changes in price. How are the two concepts different from each other? Given a negatively sloped straight-line demand curve, how will slope and elasticity differ? Given a vertical or horizontal demand curve, how will they differ?
3. Why is substitution the key factor in determining how elastic or inelastic a demand curve will be? Under what conditions will demand be more elastic?
4. What will happen to total revenue of a firm if it raises its price and its demand is elastic (or inelastic)?