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Economics > Chapter 3- Competitive Dynamics & Government > Flashcards

Chapter 3- Competitive Dynamics & Government Flashcards

0
Q

What is price elasticity of demand?

A

measure of how much demanded of a good to a change in price of that good

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1
Q

What is Elasticity of Demand?

A

A measure of responsiveness of quantity demanded to one of its determinants

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2
Q

How is price elasticity of demand calculated

A

percent change in quantity demanded divided by the percentage change in price

Nd= (%

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3
Q

Demand for a good is said to be elastic when…

A

…quantity demanded responds substantially to change in price (elasticity >1)

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4
Q

Demand is inelastic when…

A

…quantity demanded responds inly slightly to changes in price (elasticity <1)

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5
Q

Demand is said to be unit-elastic when…

A

the quantity demanded responds equally to a change in price (elasticity=1)

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6
Q

What are the Determinants of Price Elasticity of Demand?

A
  1. Necessities vs. Luxuries
  2. Availability of Close Substitutes
  3. Proportion of Consumer Incomes
  4. Time Horizon
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7
Q

What is Necessities vs. Luxuries?

A

Necessities tend to have inelastic demand while Luxuries tend to have elastic demands

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8
Q

What is Availability of Close Substitutes?

A

Goods with close substitutes tend to have more elastic demands b/c it is easier for consumers to switch from that good to another

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9
Q

What is Proportion of Consumer Incomes?

A

The demand for big purchases tends to be more elastic than the demand for smaller purchases

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10
Q

What is Time Horizon?

A

Goods tend to have more elastic demand over longer time horizons

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11
Q

What are the 5 Price Elasticity of Demand curves?

A
  1. Perfectly Inelastic
  2. Unit Elastic
  3. Inelastic Demand
  4. Elastic Demand
  5. Perfectly Elastic
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12
Q

When a curve is perfectly inelastic, what does N equal?

A

N=0

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13
Q

When a curve is unit elastic, what does N equal?

A

N=1

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14
Q

When a curve is inelastic, what does N equal?

A

N<1

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15
Q

When a curve is elastic, what does N equal?

A

N=>1

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16
Q

When a curve is perfectly elastic, what does N equal?

A

N=infinity

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17
Q

What is total revenue

A

the amount paid by buyers and received by sellers of a good

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18
Q

how is total revenue calculated

A

TR=P•Q

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19
Q

What happens TR when Demand is elastic and price goes up?

A

total revenue goes down

20
Q

What happens to TR when demand is inelastic and price goes up?

A

TR goes up

21
Q

What happens to TR when demand is unit-elastic and price goes up?

A

TR is not affected

22
Q

What is Income Elasticity of Demand?

A

a measure of how much the quantity demanded of a good response to a change in consumers incomes

23
Q

How is income elasticity of demand calculated?

A

percent change in QD divided by percent change in income

Ni= (%

24
Q

What is the income elasticity of demand for normal goods?

A

higher income raises QD; positive I elasticities

25
Q

What is the Income Elasticity of Demand for Inferior goods?

A

higher income lowers QD - have negative I elasticities

26
Q

What is Cross Price Elasticity of demand

A

It measures the responsiveness of QD of good A to a change in price of good B

27
Q

How is cross price elasticity of demand calculated

A

Cross Price Elasticity of Demand=
percent change in QD of good A divided by percent change in price of good B

Nc= (%

28
Q

Goods with a cross price elasticity >0 are…?

A

substitutes

29
Q

Goods with a cross price elasticity <0 are…?

A

complements

30
Q

Goods with a cross price elasticity =0 are…?

A

independent

31
Q

What are price controls? When do they occur?

A

Price controls are the overriding of the force of supply/demand and the “invisible hand” of competition. They occur when the govn’t passes a legal limit in how high/low a price can go

32
Q

What is a Price Ceiling? Where must they be set?

A
  • a legal max. on the price at which a good can be sold

- must be set lower than equilibrium

33
Q

What is a price floor? Where must they be set?

A
  • legal minimum on price at which a goal can be sold

- must be set higher than equilibrium

34
Q

What are price supports typically and what are they often for?

A

Price floors for agricultural goods

35
Q

What are rent controls typically? What is an example?

A

Price ceilings for controlled rental accommodation.

36
Q

What are spillover costs?

A
  • negative external effects if producing/consuming a product
  • raises supply curve
  • gov’t intervention can produce preferred outcome
37
Q

What are Spillover Benefits?

A
  • positive external effects if producing or consuming a product
  • raises demand curve
  • gov’t intervention can produce the preferred outcome
38
Q

What are public goods?

A
  • products whose benefits cant be restricted to certain individuals
  • while most consumers pay for product, others get a “free ride”
  • eg. flower garden
39
Q

What is the economic role of government?

A

there are government programs that include payment to many people, free healthcare and schooling, and subsidized public housing

40
Q

What are the main federal spending programs?

A
  1. Seniors Benefit
  2. Child Tax Credit
  3. Employment Insurance
  4. Quebec&Canada Pension Plans
41
Q

What are the responsibilities for provincial and territorial spending?

A
  1. health care
  2. subsidies for post-secondary education
  3. welfare services
42
Q

What are the 5 main types of taxation?

A
  1. Personal Income Taxes
  2. Sales Taxes
  3. Excise Taxes
  4. Property Taxes
  5. Corporate Income Taxes
43
Q

What are personal Income taxes

A

taxes levies by both federal and provincial gov’t are based on 4 marginal federal tax

44
Q

What are Sales taxes

A

Sales taxes levied by both federal and provincial gov’ts and are usually charged as a % of price on a wide range of products

45
Q

what are Excise taxes?

A

Excise taxes are levied by both federal and provincial gov’t and are usually charged as a $ amount/unit of quantity on particular products

46
Q

What are property taxes?

A

Property taxes are charged by local gov’t on buildings and land

47
Q

What are corporate income taxes?

A

taxes paid by corporations to both federal and provincial gov’ts as a % of annual profits

48
Q

What are the debates over the gov’t’s role?

A
  1. critics argue that taxes & some spending programs reduce productive activity
  2. critics argue that many gov’t programs are inequitable, and hampered by high administrative problems
  3. supporters of gov’t admit that public spending and taxation are not as effective as they could be. But they argue that these problems need to be seen in perspective, given that private markets are also subject to a variety of flaws.

Economics (5 decks)

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