Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ECON 208, Microeconomics > CH4 - Elasticity > Flashcards

CH4 - Elasticity Flashcards

1
Q

When is a good elastic?

A

A good is said to be elastic when quantity demanded is quite responsive to changes in price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When is a good inelastic?

A

A good is said to be inelastic when quantity demanded is unresponsive to changes in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the effects of a reduction in supply on a good where the demand is elastic?

A

The effect of reduction supply is a slight rise in price and a large decrease in quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the effects of a reduction in supply on a good where the demand is inelastic?

A

The effect of reduction supply is a slight rise in price and a large decrease in quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the formula for price elasticity of demand?

A

N = ( % change in Q demanded) / (% change in P)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the formula for elasticity of price?

A

N = ( % change in Q) / (% change in p)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When η<1, demand is

A

Inelastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

When η>1, demand is

A

Elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

When η=1, demand is

A

Unit elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

The closer you got to the … axis, elasticity approaches …

A

The closer you get to the vertical axis, elasticity approaches oo

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When demand curve is horizontal, η is equal to what?

A

η=oo

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When demand curve is vertical, η is equal to what

A

η=0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What determines elasticity of demand?

A
  1. Availability of substitutes
    Change in price of X w substitutes remaining constant => X will be substituted
    Products defined more broadly have more substitutes so more elastic
  2. Importance in consumer’s budget
    small fraction = inelastic demands
    large fraction = elastic demands
  3. Time period - short vs long run
    Inelastic in short run can become elastic over time
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does it mean when something is perfectly inelastic?

A

Quantity demanded doesnt change as price changes.
Demand curve is vertical
η=0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What does it mean when something is inelastic?

A

% change in Q demanded is smaller than % change in P
0 < η < 1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What does it mean when something it unit elastic?

A

The % change in Q demanded is equal to the % change in P
η=1

17
Q

What does it mean when something is elastic?

A

% change in Q demanded is larger than the % change in price
η>1

18
Q

What does it mean when something is perfectly elastic?

A

Buyers are prepared to buy all they can at the given price.
Demand curve is horizontal
η=oo

19
Q

What is the formula for total expenditure?

A

Total expenditure = price x quantity

20
Q

What effect does a reduction in price and elasticity of price have on total expenditure?

A

If demand for a product is inelastic, a reduction in price leads to a decline in total expenditure.
If demand for a product is elastic, a reduction in price leads to an increase in total expenditure.

21
Q

What does a vertical supply curve imply?

A

Quantity supplied does not change as price changes = supply is inelastic

22
Q

What does a horizontal supply curve imply

A

There is an infinite elasticity of supply

23
Q

What are 2 determinants of elasticity of supply?

A
  1. ease of substitution
    If the price of a product rises, how much more can firms produce profitably? This depends in part on how easy it is for firms to shift from the production of other products to the one whose price has risen.
  2. short run and long run
    It may be difficult to change quantity supplied in response to a price increase in a matter of weeks or months but easy to do so over years.
    The long-run supply for a product is more elastic than the short-run supply
24
Q

When is Price elasticity of Supply perfectly inelastic?

A

Ns = 0
Q supplied doesnt change as price changes
supply curve is vertical

25
Q

When is Price elasticity of supply inelastic?

A

0 < Ns < 1
% change in Q supplied is smaller than the percentage change in price

26
Q

When is price elasticity of supply unit elastic?

A

Ns = 1
% change in quantity supplied is = to % change in price

27
Q

When is price elasticity of supply elastic?

A

Ns > 1
% change in Q supplied is larger than the % change in price

28
Q

When is price elasticity of supply perfectly elastic

A

Ns = infinity
Sellers are prepared to sell all they can at given price
Supply curve is horizontal

29
Q

What is an excise tax?

A

Tax on the sale of a particular product

30
Q

What is tax incidence?

A

Location of the burden of a tax, that is, the identity of the ultimate bearer of the tax

31
Q

When do consumers bear most of the burden of excise taxes, and when is it producers?

A

When demand is inelastic relative to supply, consumers bear most of the burden of excise taxes. When supply is inelastic relative to demand, producers bear most of the burden.

32
Q

What effect does an increase in wages have on the demand and supply curve?

A

An increase in wages will shift the demand curve to the right and the supply curve to the left

33
Q

What do you measure with the income elasticity of demand?

A

A measure of the responsiveness of quantity demanded to a change in income

34
Q

What happens to demand for normal goods as income rises?

A

good for which Q demanded rises as income rises = income elasticity is positive

35
Q

What happens to demand for inferior goods as income rises?

A

Good for which q demanded falls as income rises = income elasticity is negative

36
Q

How do you distinguish necessities from luxuries in terms of elasticity? (normal goods)

A

Necessities: products for which the income elasticity of demand is positive but less than one

Luxuries: products for which the income elasticity of demand is positive and greater than one

37
Q

What is the formula for cross elasticity of demand?

A

Nxy = (%change in Q demanded of good x) / (%change in P of good y)

38
Q

Is the cross elasticity for complementary products positive or negative?

A

Negative
When price of one good rises, the quantity demanded of other good falls

39
Q

Is the cross elasticity for substitute products positive or negative?

A

Positive
When price of one good rises, Q demanded of other good increases

ECON 208, Microeconomics (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions