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Microeconomics > Chapter 4 - Elasticity > Flashcards

Chapter 4 - Elasticity Flashcards

1
Q

What is the law of demand and supply?

A

Reduction of price increases QD and reduces QS

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2
Q

What is elasticity?

A

Our response/sensitivity to shock in economy

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3
Q

What is own-price elasticity of demand?

A

QD of commodity x with respect to the price of commodity x

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4
Q

What is cross-price elasticity of demand?

A

Demand for commodity x with respect to the price of commodity y

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5
Q

What is income elasticity of demand?

A

Demand for commodity x with respect to income

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6
Q

Give an example of cross-price - demand

A

Coffee and tea

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7
Q

Give an example of income - demand

A

How you increase consumption of normal or inferior good

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8
Q

What is own-price elasticity of supply?

A

Quantity supplies of commodity i with respect to the price of commodity i

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9
Q

Give an example of own-price - supply

A

If wheat price inc., how much producers will change production

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10
Q

What is elasticity of supply with respect to the price of labour?

A

Quantity supplied of commodity i with respect to the wage rate

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11
Q

Differentiate elastic and inelastic

A

Elastic: QD is very responsive to change in price
Inelastic: QD is very unresponsive to change in price

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12
Q

The more elastic demand is, the _ the change in eq. price and _ the change in eq. quantity

A

Less, greater

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13
Q

Which is more steep - elastic or inelastic?

A

Inelastic

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14
Q

What is nd?

A

% change in QD/% change in P

[change in QD/avg QD]/[change in P/avg P]

[avg P/avg QD]/[slope]

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15
Q

N is an _ value and _ free

A

Absolute, unit

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16
Q

When n=infinity, the curve is _ _

A

Perfectly elastic (horizontal)

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17
Q

When n>1, the curve is _

A

Elastic

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18
Q

When n=1, the curve is _ _

A

Unit elastic

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19
Q

When n<1, the curve is _

A

Inelastic

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20
Q

When n=0, the curve is _ _

A

Perfectly inelastic (vertical)

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21
Q

On a downward sloping curve, elasticity is always _

A

1

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22
Q

Narrowly define products have (more/less) elastic demands than do more broadly define products

A

More

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23
Q

Consumers can readily substitute one brand of beverages for another if the price rises. Elastic or inelastic?

A

Elastic for a particular brand

24
Q

If all beverages’ prices rise, the consumer cannot switch. Elastic or inelastic?

A

Inelastic for detergents as a group

25
Q

Luxuries exhibit _ demands, while necessities exhibit _ demands

A

Elastic, inelastic

26
Q

What is a short-run demand/supply curve?

A

Shows immediate response of QD/QS to a change in price

More inelastic

27
Q

What is a long-run demand/supply curve?

A

Shows response after enough time has passed to a) develop/switch to substitute products or b) allow producers to adjust their productive capacity
More elastic

28
Q

What is the equation for total expenditure?

A

Price x Quantity

29
Q

When demand is elastic, TE (increases/decreases) when price falls

A

Increases

30
Q

When demand is inelastic, TE (increases/decreases) when price falls

A

Decreases

31
Q

When demand is unit elastic, TE reaches a _

A

Maximum

32
Q

What is ns?

A

% change in QS/% change in P

[change in QS/avg QS]/[change in P/avg P]

[avg P/avg QS]/[slope]

33
Q

What determinants do supply elasticity depend on? (2)

A

Technical ease of substitution in production

Time span under consideration

34
Q

What determinants does demand elasticity depend on? (3)

A

Narrowly vs broadly defined
Necessity vs luxury
Length of time interval

35
Q

Why measure price elasticity?

A

Tax incidence

36
Q

What is an excise tax?

A

Tax on the sale of a particular commodity

37
Q

An excise tax raises the price paid by _ but reduces the price received by _

A

Consumers, producers

38
Q

The more elastic a demand, the (more/less) burden for consumers

A

Less

39
Q

The more inelastic a demand, the (more/less) burden for consumers

A

More

40
Q

Tax causes supply to shift. T/F?

A

True

41
Q

The more elastic the SC, the (more/less) burden on consumer, and (more/less) on the producer

A

More, less

42
Q

The more inelastic the SC, the (more/less) burden on the consumer, and (more/less) on the producer

A

Less, more

43
Q

How do you find Q* and P* in equilibrium without tax?

A

Equate demand and supply equations

Pc=Ps

44
Q

How do you find Qnew and Pnew in equilibrium with tax?

A

Pc=Ps+T

45
Q

How do you find govt revenue?

A

Qnew x Tax

46
Q

How do you find part paid by consumers?

A

Qnew x (Pc-P*)

47
Q

How do you find part paid by suppliers?

A

Qnew x (P*-Ps)

48
Q

What is the equation for ny, income elasticity of demand?

A

% change in QD/% change in income

49
Q

When ny > 0, the good is a(n) _ good

A

Normal

50
Q

When ny < 0, the good is a(n) _ good

A

Inferior

51
Q

When 0 < ny < 1, the normal good is a _ good

A

Necessary

52
Q

When ny > 0, the normal good is a _ good

A

Luxury

53
Q

The more necessary an item is, the _ its income elasticity

A

Lower

54
Q

What is the equation for nxy, cross elasticity of demand?

A

% change in QD of good X/% change in price of good Y

55
Q

If nxy > 0, X and Y are _

A

Substitutes

56
Q

If nxy < 0, X and Y are _

A

Complements

Microeconomics (12 decks)

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