Chapter 5 Flashcards
Demand is ____ when the percentage change in the quantity demanded is greater than the percentage change in the price of the good or service. The price elasticity of demand is ____.
elastic; greater than one
The percentage change in quantity demanded of a good or service divided by the percentage change in income
Income elasticity of demand
Demand is ____ when the percentage change in the quantity demanded is less than the percentage change in the price of the good or service. The price elasticity of demand is ____.
inelastic; less than one
A legal minimum for wages (the price of one hour of labor) for most categories of workers.
Minimum wage
A good or service that is viewed by consumers as a high priority. Consumers tend to be less sensitive to price changes of goods that are assumed to be ____.
necessities
The legal maximum price for which a good or service can be sold. Examples include laws limiting apartment rents in some cities.
price ceilings
The percentage change in quantity demanded of a good or service divided by the percentage change in price.
Price elasticity of demand
The percentage change in quantity supplied of a good or service divided by the percentage change in price.
Price elasticity of supply
The legal minimum price at which a good or service can be sold. An example is the federal minimum wage, currently $7.25 per hour.
price floor
A policy which sets a legal maximum rent that can be charged for some apartments in some major cities.
rent control
Payments from governments to producers or consumers of specific goods and services.
subsidies
Goods or services that consumers consider as serving similar purposes.
substitutes
Mandatory payments to governments from consumers and producers.
taxes
How do you calculate percentage change?
(Ending value - Beginning Value) /
Beginning value
x 100
How do you calculate elasticity of demand?
Percentage change in quantity / Percentage change in price
What determines the elasticity of demand?
number of substitutes, whether it is a necessity, percentage of income spent on good, length of time for adjustment to change of price
A business should ______ (increase/decrease) the price of a good with an inelastic demand if it wants to increase revenues.
increase
If demand is inelastic and prices increase, quantity will ____
decrease
The graph for perfect inelastic demand would look ___
straight up and down
The graph for perfectly elastic demand would look ____
flat straight across
The primary influence on the price elasticity of supply is the ability of the producer to ____
increase production
How do you calculate income elasticity?
Percentage change in quantity demanded / percentage change in income
If income elasticity of demand is positive, the good is ____
a normal good
An effective price ceiling is ____ the equilibrium price, while an effective price floor is ____ the equilibrium price (above or below?)
below; above
If the government imposes an effective price ceiling in a market, will there be a surplus or shortage?
shortage
When taxing goods, if the demand curve is inelastic then more of the tax will be paid for by ____ and less by ____
consumers; producers
If demand is elastic, then the impact of a subsidy will be much ____ (less/greater) than if demand were inelastic
greater
If elasticity of demand is greater than one (absolute value), then demand is ____. If it is less than one, it is ____.
elastic; inelastic
Subsidies of goods and services will ____ the equilibrium price and ____ the equilibrium quantity.
(decrease/increase)
decrease; increase
The income elasticity of an inferior good is ____.
negative
