Chapter 4 - Elasticity

Question 1

What is the law of demand and supply?

Answer 1

Reduction of price increases QD and reduces QS

Question 2

What is elasticity?

Answer 2

Our response/sensitivity to shock in economy

Question 3

What is own-price elasticity of demand?

Answer 3

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

Question 4

What is cross-price elasticity of demand?

Answer 4

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

Question 5

What is income elasticity of demand?

Answer 5

Demand for commodity x with respect to income

Question 6

Give an example of cross-price - demand

Answer 6

Coffee and tea

Question 7

Give an example of income - demand

Answer 7

How you increase consumption of normal or inferior good

Question 8

What is own-price elasticity of supply?

Answer 8

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

Question 9

Give an example of own-price - supply

Answer 9

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

Question 10

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

Answer 10

Quantity supplied of commodity i with respect to the wage rate

Question 11

Differentiate elastic and inelastic

Answer 11

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

Question 12

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

Answer 12

Less, greater

Question 13

Which is more steep - elastic or inelastic?

Answer 13

Inelastic

Question 14

What is nd?

Answer 14

% change in QD/% change in P

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

[avg P/avg QD]/[slope]

Question 15

N is an _ value and _ free

Answer 15

Absolute, unit

Question 16

When n=infinity, the curve is _ _

Answer 16

Perfectly elastic (horizontal)

Question 17

When n>1, the curve is _

Answer 17

Elastic

Question 18

When n=1, the curve is _ _

Answer 18

Unit elastic

Question 19

When n<1, the curve is _

Answer 19

Inelastic

Question 20

When n=0, the curve is _ _

Answer 20

Perfectly inelastic (vertical)

Question 21

On a downward sloping curve, elasticity is always _

Answer 21

1

Question 22

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

Answer 22

More

Question 23

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

Answer 23

Elastic for a particular brand

Question 24

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

Answer 24

Inelastic for detergents as a group

Question 25

Luxuries exhibit _ demands, while necessities exhibit _ demands

Answer 25

Elastic, inelastic

Question 26

What is a short-run demand/supply curve?

Answer 26

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

Question 27

What is a long-run demand/supply curve?

Answer 27

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

Question 28

What is the equation for total expenditure?

Answer 28

Price x Quantity

Question 29

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

Answer 29

Increases

Question 30

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

Answer 30

Decreases

Question 31

When demand is unit elastic, TE reaches a _

Answer 31

Maximum

Question 32

What is ns?

Answer 32

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

Question 33

What determinants do supply elasticity depend on? (2)

Answer 33

Technical ease of substitution in production | Time span under consideration

Question 34

What determinants does demand elasticity depend on? (3)

Answer 34

Narrowly vs broadly defined Necessity vs luxury Length of time interval

Question 35

Why measure price elasticity?

Answer 35

Tax incidence

Question 36

What is an excise tax?

Answer 36

Tax on the sale of a particular commodity

Question 37

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

Answer 37

Consumers, producers

Question 38

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

Answer 38

Less

Question 39

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

Answer 39

More

Question 40

Tax causes supply to shift. T/F?

Answer 40

True

Question 41

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

Answer 41

More, less

Question 42

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

Answer 42

Less, more

Question 43

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

Answer 43

Equate demand and supply equations | Pc=Ps

Question 44

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

Answer 44

Pc=Ps+T

Question 45

How do you find govt revenue?

Answer 45

Qnew x Tax

Question 46

How do you find part paid by consumers?

Answer 46

Qnew x (Pc-P*)

Question 47

How do you find part paid by suppliers?

Answer 47

Qnew x (P*-Ps)

Question 48

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

Answer 48

% change in QD/% change in income

Question 49

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

Answer 49

Normal

Question 50

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

Answer 50

Inferior

Question 51

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

Answer 51

Necessary

Question 52

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

Answer 52

Luxury

Question 53

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

Answer 53

Lower

Question 54

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

Answer 54

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

Question 55

If nxy > 0, X and Y are _

Answer 55

Substitutes

Question 56

If nxy < 0, X and Y are _

Answer 56

Complements