5. Elasticity.

Question 1

Subsidies.

Answer 1

Payments by the government to producers to encourage production of a good or service.

Question 2

Incidence of tax.

Answer 2

The proportion of a tax that is passed into the consumer.

Question 3

Income elasticity of demand.

Answer 3

The responsiveness of demand following a change in incomes. (Positive-normal / Negative-inferior)

%∆ QD / %∆ Y

Question 4

Substitutes. (What’s the cross price elasticity?)

Answer 4

Goods that can be used as an alternative to another good. Such as bus and rail services. (Positive cross price elasticity)

Question 5

Commodity.

Answer 5

Goods which are identical and are traded by many firms (eg. raw materials)

Question 6

Price elasticity of demand.

Answer 6

The responsiveness of demand following a change in the price level.

%∆ QD / %∆P

Question 7

Normal goods

Answer 7

Goods or services which will see an increase in demand when incomes rise

Question 8

Inferior goods

Answer 8

Goods or services which see a fall in demand when incomes rise.