Chapter 4 Midterm

Question 1

Elasticity vs Inelasticity DEFINITIONS

Answer 1

elastic: quantity demanded is quite responsive to changes in price (diet coke, car payments, rent, etc)

inelastic: unresponsive to changes in price (cigarettes, alcohol, etc)

Question 2

How does elastic/inelastic demand look on a graph
(may be incorrect)

Answer 2

supply curve is independent.

-inelastic demand is more vertically pronated

-elastic demand is horizontally pronated

Question 3

Rule of equilibrium for elasticity

Answer 3

The more responsive QD is to changes in PRICE, the LESS CHANGE in EQUILIBRIUM PRICE, and the GREATER CHANGE in EQUILIBRIUM QUANTITY; resulting from any kind of shift from the SUPPLY CURVE

Question 4

What are absolute vs percentage changes?

When do they need to be used?

Answer 4

normally better to know percentage change

Question 5

True or false: Linear demand curves should be evaluated at different given points to find elasticity as they’re elasticity varies across the line?

Answer 5

true

Question 6

True or false; the further you move down the demand curve the less the price elasticity is

Answer 6

true

Question 7

true or false, the longer the time span, the more elastic the price elasticty of demand

Answer 7

true

Question 8

different between short and long run equilibrium

Answer 8

long run equilibrium has price and quantity above those that prevailed in short run equilibrium

Question 9

T or F Supply elasticity has the same forumla as demand elasticity

Answer 9

True

Question 10

supply curves (in respect ot this course) all have _____. An increase in Price causes an ____ in quantity supplied? Price and quantity of supply change in ____ direction

Answer 10

1. Positive Slopes
2. increase
3. the same

Question 11

What are the dtereminants of supply elasticity?
How do they affect it

Answer 11

1. EASE OF SUBSITIUTION
   if it is easy for a firm to switch production to a substitute, supply will be more elastic
2. SHORT AND LONG RUN
   elasticity of a good is greater when it is over a longer period of time than a shorter one (with some exemptions of change).

Question 12

How is quanitity demanded and price affected by short and long term equilibriums

Answer 12

SHORT: inability to change output in short run will result mostly in a change of price
LONG: as firms are increasingly able to produce, the consequences of a demand shift are more on quantity and less on price. MORE ELASTIC

Question 13

what is tax incidence

Answer 13

the use of elasticity to determine whether consumers or producers bear the burden of taxes

Question 14

what is excise Taxes

Answer 14

special sales taxes on the fun stuff. Burden is distributed between consumers and producers depending on relative elasticities of supply and demand

Question 15

in the new equilibrium, the quantity exchanged is ____ than what occurred without the tax

Answer 15

Less than

Question 16

When do consumers bear the least amount of excise tax?

when do they Bear the most amount of tax

Answer 16

When demand curve is perfectly elastic ( or more elastic)

When demand curve is more inelastic than supply

Question 17

When do sellers bear the least amount of excise tax?

When do they bear the most

Answer 17

when supply is more elastic than demand

When supply is more inelastic than demand