Chapter 4

Question 1

elasticity of demand

Answer 1

a measure of the responsiveness of quantity demanded to a change in the commodity’s own price

Question 2

inelastic demand

Answer 2

following a given percentage change in price, there is a smaller percentage change in quantity demanded; elasticity < 1

Question 3

elastic demand

Answer 3

following a given percentage change in price, there is a greater percentage change in quantity demanded; elasticity > 1

Question 4

price elasticity of supply

Answer 4

a measure of the responsiveness of quantity supplied to a change in the product’s own price

Question 5

excise tax

Answer 5

a tax on the sale of a particular commodity

Question 6

tax incidence

Answer 6

the location of the burden of a tax - that is, the identity of the ultimate bearer of the tax

Question 7

necessities

Answer 7

products for which the income elasticity of demand is positive but less than 1

Question 8

luxuries

Answer 8

products for which the income elasticity of demand is positive and greater than 1

Question 9

income elasticity of demand

Answer 9

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

Question 10

normal good

Answer 10

good for which quantity demanded rises as income rises - its income elasticity is positive

Question 11

inferior good

Answer 11

a good for which quantity demanded falls as income rises - its income elasticity is negative

Question 12

cross elasticity of demand

Answer 12

a measure of the responsiveness of the quantity of one commodity demanded to changes in the price of another commodity

Question 13

how do you calculate %change?

Answer 13

change divided by the average value

Question 14

when elasticity is less than one, the demand is (elastic/inelastic)

Answer 14

inelastic

Question 15

what is the main determinant of demand elasticity?

Answer 15

availability of substitutes for the product.

Question 16

an individual product belonging to a group of close substitutes will have a (more/less) elastic demand than the group as a whole

Answer 16

more

Question 17

demand is more elastic in the (long/short) run

Answer 17

long

Question 18

supply is more elastic in the (long/short) run

Answer 18

long

Question 19

the distribution of the burden of an excise tax between consumers and producers depends on what?

Answer 19

relative elasticities for the product

Question 20

the burden of excise tax falls on consumers when demand is (more/less) elastic

Answer 20

less

Question 21

the burden of excise tax falls more on producers when demand is (more/less) elastic

Answer 21

more

Question 22

true or false: income elasticity of demand for a product will usually change as income varies

Answer 22

true

Question 23

cross elasticity of demand is used to define what kind of products?

Answer 23

substitutes (positive)

complements (negative)