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44 Cards in this Set

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Economics chapter 17
Economics chapter 17
Define elasticity
a measure of the responsiveness of one variable to changes in another variable
What does price elasticity of demand measure
the relative sizes of the changes in quantity demanded and price
What is the formula for price elasticity of demand
Ed = % change in quantity demanded / % change in price
Discuss the 1st extreme example we look at before looking at the calculation of price elasticity of demand
perfectly inelastic demand: when demand is perfectly inelastic, quantity demanded is unchanged by change in price. Price elasticity of demand is zero. eg: insulin w/ DM1
Discuss the 2nd extreme example we look at before looking at the calculation of price elasticity of demand
perfectly elastic demand: the demand curve is horizontal indicating that a seller has no ability to change the selling price.
Name the 3 price elasticity of demand classifications
1. if Ed is >1, demand is elastic
2. if Ed is <1, demand is inelastic
3. if Ed = 1 demand is unitary elastic
How do we calculate total revenue
total revenue = price X quantity
What factors determine whether the demand for a good is elastic or inelastic
1. # of substitues for the good
2. % of a person's budget spent on the good
3. Nature of good: luxury vs necessity
4. Time consumers have to respond
Explain the number of substitues for the good as it pertains to determinants of price elasticity of demand
more substitues for a good, the more elastic the demand for the good. Fewer subs for a good, the nless elastic the demand
Explain the percentage of a person's budget spent on goods as it pertains to determinants of price elasticity of demand
the greater the % spent on goods, more elastic the demand for the good. Smaller % spent on good, less elastic the demand
Explain the nature of the good; luxury vs necessaity as it pertains to determinants of price elasticity of demand
luxury goods, demand tend to be more elastic. necessities, demands tend to be more inelastic
Explain time consumers have to respond as it pertains to determinants of price elasticity of demand
more time consumer have to respond to a price change for a good, more elastic the demand for the good. Less time, less elastic the demand
A change in consumer rincome will cause a change in demand in same direction for _______ goods or in the opposited direction for _______ goods
normal, inferior
What does Ed stand for?
price elasticity of demand
What does Ey stand for
income elasticity of demand
What does Ec stand for
cross elasticity of demand
What does cross elasticity of demand measure
the responsiveness of demand for one good to a change in price for another good. Ec is positive for sub and negative for complements.
What does the law of supply indicate between price and quantity supplied
there is a direct relationship between them
What is the biggest factor affecting price elasticity of supply
time. The more time producers have to respond to a price change for a good, the moreelastic the supply for the good.
What does the burden of tax refer to
who actually feels the impact of a tax. If a tax is imposed on the sellers of a good, the burden of the tax will fall on both the seller and buyers of the good
What does the relative burden of a tax depend upon
the price elasticities of demand and supply. Buyers bear a greater burden of tax if supply is more elastic than demand. Sellers bear a greater burden if demand is more elastic than supply
Fill in the blanks: ____ is a measure of the responsiveness of one variable to changes in another variable
elasticity
Fill in the blanks: when demand is perfectly ____, quantity demanded is unchaged by a change in price
inelastic
Fill in the blanks: ____ elasticity of demand measures the responsive of demand to change in income
income
Fill in the blanks: ____ elasticity of demand measures the responsiveness of demand for one good to a change in price for another good
cross
If the demand curve for a good is vertical, the damand for the good is
a. perfectly inelastic
b. unitary elastic
c. perfectly elastic
d. all
a
If the demand curve is horizontal:
a. aseller has no ability to change the selling price
b. demand is perfectly elastic
c. both
d. none
c
Assume that when the price of a good decreases from $32-$24, the quantity demanded of the good increases from 80-100. What is the price elasticity of demand
a. .22
b. .29
c. .78
d. 1.29
c
Assume that when the price of a good increases from $45-$55, the quantity demanded of the good decreases from 275-225. What is the price elasticity of demand
a. .20
b. .50
c. 1.00
d. 1.50
c
When the price elasticity of demand is greater than one, price and total revenue:
a. are directly related
b. are inversely related
c. are unrelated
d. all
b
When the price of Good A increases, the totatl revenue from Good A is unchanged. From this we know that the demandfor Good A is:
a. elastic
b. inelastic
c. unitary elastic
d. all
c
The factors that determine whether demand for a good is elastic or inelastic are called:
a. determinants of price elasticity of demand
b. determinants of demand
c. determinants of supply
d. the determinators
a
The larger the percentage of their budgets that consumers spend on Good B:
a. the more inelastic the supply of good B
b. the more elastic the suply of good B
c. the more inelastic the demand for good B
d. The more elastic the dmand for good B
d
The demand for a good is likely to be inelastic if:
a. ther are few subs for the good
b. the good is a luxury item
c. theconsumers have a lot of time to respond to a price change
d. all
a
When the average income of consumers of good B increased from $2300-2500, the quantity demanded of good B decreased from 82 units to 78 units. The income elasticity of demand for good B is;
a. -.60
b. -1.67
c. 1.67
d. .60
a
Good C has an income elasticity of demand of -.27. Good C is:
a. normal good
b. abnormal good
c. inferior good
d. superior good
c
When the price of good Q decreases from $100-.80 the quantity demanded of good P increased from 95-105. The cross elasticity of demand for good P and Q are:
a. 2.22
b. .45
c. -.45
d. -2.22
c
The cross elasticity of demand for goods D and E is .71. Goods D and E are:
a. normal
b. unrrelated to each other
c. complements
d. substitues
d
When the price of good R decreases from $18 to $12, the quantity supplied of good R decreases from 125-75. The price elasticity of supply for good R is:
a. -1.25
b. -.80
c. .80
d. 1.25
d
A tax is placed on the sellers of good F. The burden of the tax on good F will fall mainly on the buyers if:
a. the demand for good F is more elastic than the supply of good F
b. The supply of good F is more elastic than the demand for good F
c. The demand for good F is perfectly inelastic
d. both B and C
d
List the 4 determinants of price elasticity of demand
1. # of subs for the good
2. % of a person's budget spent on the good
3. Nature of the good; luxury vs necessity
4. time conusmers have to respond
When the average income of the consumers of good A decreased from $3000-2400, the quantity demanded of good A decreased from 160 units to 140:
a. What is the income elasticity of demand for good A
b. Is good A a normal good or an inferior good
a. .60
b. normal
When the price of good Y decreased from $23 - 17, the quantity demanded of good X decreased from 550-450:
a. what is the cross elasticity of demand for good X and Y
b. Are goods X and Y substitues or copmlements
a. .667
b. substitutes