Chapter 4 Flashcards
elasticity of demand
a measure of the responsiveness of quantity demanded to a change in the commodity’s own price
inelastic demand
following a given percentage change in price, there is a smaller percentage change in quantity demanded; elasticity < 1
elastic demand
following a given percentage change in price, there is a greater percentage change in quantity demanded; elasticity > 1
price elasticity of supply
a measure of the responsiveness of quantity supplied to a change in the product’s own price
excise tax
a tax on the sale of a particular commodity
tax incidence
the location of the burden of a tax - that is, the identity of the ultimate bearer of the tax
necessities
products for which the income elasticity of demand is positive but less than 1
luxuries
products for which the income elasticity of demand is positive and greater than 1
income elasticity of demand
measure of the responsiveness of quantity demanded to a change in income
normal good
good for which quantity demanded rises as income rises - its income elasticity is positive
inferior good
a good for which quantity demanded falls as income rises - its income elasticity is negative
cross elasticity of demand
a measure of the responsiveness of the quantity of one commodity demanded to changes in the price of another commodity
how do you calculate %change?
change divided by the average value
when elasticity is less than one, the demand is (elastic/inelastic)
inelastic
what is the main determinant of demand elasticity?
availability of substitutes for the product.
an individual product belonging to a group of close substitutes will have a (more/less) elastic demand than the group as a whole
more
demand is more elastic in the (long/short) run
long
supply is more elastic in the (long/short) run
long
the distribution of the burden of an excise tax between consumers and producers depends on what?
relative elasticities for the product
the burden of excise tax falls on consumers when demand is (more/less) elastic
less
the burden of excise tax falls more on producers when demand is (more/less) elastic
more
true or false: income elasticity of demand for a product will usually change as income varies
true
cross elasticity of demand is used to define what kind of products?
substitutes (positive)
complements (negative)
