Econ 101 Mi Ch. 5

Front 1

elasticity

Back 1

measures the proprtional responsiveness of one variable with respect to changes in another

Front 2

price elasticity of demand

Back 2

a measure of the proprtional change in units purchased when price is changed by a given small proportion

Front 3

Demand is PRICE INELASTIC if the absolute value of the elasticity coefficient is...

Back 3

less than 1.0

Front 4

Demand is PRICE ELASTIC if the absolute value of the elasticity coefficient...

Back 4

exceeds 1.0

Front 5

PRICES FALL
We know that demand is inelastic, then we know what concerning quantity and total revenue?

Back 5

If demand is inelastic, then when prices fall, the increase in quantity will be relatively less than the decrease in price and total revenue will fall.

Front 6

PRICES FALL
If we know demand is elastic, what do we know about quantity and total revenue?

Back 6

If demand is elastic and prices fall, the total revenue rises because quantity grows relatively far more than price falls.

Front 7

PRICES RISE
If we know demand is inelastic, what happens to quantity and total revenue?

Back 7

If demand is inelastic and prices rise, quantities decrease little relative to the increase in price, so total revenue rises.

Front 8

PRICES RISE
If we know demand is elastic, what happens to quantity and total revenue?

Back 8

If demand is elastic and prices rise, the total revenue falls because the quantity demanded decreases relatively more than prices rise, so total revenue falls.

Front 9

What does the curve of a perfectly elastic demand look like?

Back 9

horizontal, with price elasticities of infinity

Front 10

A) If demand is relatively elastic, then price changes trigger what as far as quantity?
B) Consequently, if elasticity of demand is greater than 1 but not perfectly elastic, then what will happen to total revenue when prices change?

Back 10

A) Price changes trigger proportionally larger adjustments in quantity.
B) When prices raise, total revenue will fall; when prices fall, total revenue will grow

Front 11

What does the curve of a perfectly inelastic demand look like?

Back 11

vertical, with zero elasticity

Front 12

Zero price elasticity implies what about a good?

Back 12

Zero price elasticity implies a lack of substitutes for a good and that it is essential (consumers would pay any price to receive a specific quantity of it)

Front 13

A) If demand is relatively inelastic, then prices trigger what as far as quantity?
B) Consequently if elasticity of demand is less than 1 but not perfectly inelastic, what will happen to total revenue when prices change?

Back 13

A) If demand is relatively inelastic then price changes trigger proportionally smaller adjustments in quantity.
B) When prices rise, total revenue will increase; when prices fall, total revenue will decrease.

Front 14

What does the curve of a perfectly elastic demand look like?

Back 14

horizontal, with price elasticities of infinity

Front 15

A) If demand is relatively elastic, then price changes trigger what as far as quantity?
B) Consequently, if elasticity of demand is greater than 1 but not perfectly elastic, then what will happen to total revenue when prices change?

Back 15

A) Price changes trigger proportionally larger adjustments in quantity.
B) When prices raise, total revenue will fall; when prices fall, total revenue will grow

Front 16

What does the curve of a perfectly inelastic demand look like?

Back 16

vertical, with zero elasticity

Front 17

Zero price elasticity implies what about a good?

Back 17

Zero price elasticity implies a lack of substitutes for a good and that it is essential (consumers would pay any price to receive a specific quantity of it)

Front 18

A) If demand is relatively inelastic, then prices trigger what as far as quantity?
B) Consequently if elasticity of demand is less than 1 but not perfectly inelastic, what will happen to total revenue when prices change?

Back 18

A) If demand is relatively inelastic then price changes trigger proportionally smaller adjustments in quantity.
B) When prices rise, total revenue will increase; when prices fall, total revenue will decrease.

Front 19

Explain unitarily elastic demand

Back 19

A unitarily elastic demand curve oocurs when the elasticity coefficient equals one, so total revenue from the good is unaffected by a change in price

Front 20

Price elasticities of demand tend to rise as what happens to price?

Back 20

Price elasticities of demand tend to rise as higher and higher prices are charged.

Front 21

3 major determinants of elasticity of demand include:

Back 21

1. the number, quality, and availability of SUBSTITUTES for a good
2. the proportion an item absorbs

Front 22

income elasticity if demand

Back 22

measures the proportional change in the quantity demanded of a good resulting from a given small proportional change in income

Front 23

Income elasticity of demand for NORMAL GOODS

Back 23

income elasticities are positive -- rising incomes stimulate purchases of all normal goods

Front 24

Income elasticity of demand for all INFERIOR GOODS

Back 24

income elasticities are negative -- purchases of inferior goods decline as income rises

Front 25

Cross Price Elasticity of Demand

Back 25

estimates the proportional change in the quantity of one good demanded when the price of a related good is changed

Front 26

When cross price elasticities are positive, the items in questions are...

Back 26

substitute goods

Front 27

Sets of goods for which cross price elasticities of demand are negative are...

Back 27

complementary goods

Front 28

price elasticity of supply

Back 28

measures the responsiveness of quantity supplied to changes in price

Front 29

economic incidence of taxation

Back 29

aka tax burden
falls on person who suffers reduced purchasing power because of the tax

Front 30

Inelastic supply -- who bears legal/economic incidence of tax?

Back 30

Suppliers

Front 31

Inelastic demand -- who bears tax burden?

Back 31

Consumer bears full burden

Front 32

Elastic demand -- who bears tax burden?

Back 32

Supplier bears full burden

Front 33

Elastic supply -- who bears tax burden?

Back 33

Consumer bears full burden

Front 34

Forward-shifted tax;
Backward-shifted

Back 34

borne by consumer;
borne by supplier

Front 35

Taxes will be 100% forward-shifted if either:
a)
b)

Back 35

a) demand is perfectly inelastic, e.g. salt
b) supply is perfectly elastic
e.g. copper

Front 36

Taxes will be 100% backward-shifted if either:
a)
b)

Back 36

a) supply is perfectly inelastic
b) demand is perfectly elastic

Front 37

General principle:
The greater the elasticity of market demand relative to the elasticity of the market supply...

Back 37

the greater the backward shifting of any tax burden.

Front 38

General principle:
The smaller the ratio of
(elasticity of demand)/(elasticity of supply) ...

Back 38

the greater the forward-shifting of the tax burden