Chapter 5

Question 1

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 ____.

Answer 1

elastic; greater than one

Question 2

The percentage change in quantity demanded of a good or service divided by the percentage change in income

Answer 2

Income elasticity of demand

Question 3

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 ____.

Answer 3

inelastic; less than one

Question 4

A legal minimum for wages (the price of one hour of labor) for most categories of workers.

Answer 4

Minimum wage

Question 5

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 ____.

Answer 5

necessities

Question 6

The legal maximum price for which a good or service can be sold. Examples include laws limiting apartment rents in some cities.

Answer 6

price ceilings

Question 7

The percentage change in quantity demanded of a good or service divided by the percentage change in price.

Answer 7

Price elasticity of demand

Question 8

The percentage change in quantity supplied of a good or service divided by the percentage change in price.

Answer 8

Price elasticity of supply

Question 9

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.

Answer 9

price floor

Question 10

A policy which sets a legal maximum rent that can be charged for some apartments in some major cities.

Answer 10

rent control

Question 11

Payments from governments to producers or consumers of specific goods and services.

Answer 11

subsidies

Question 12

Goods or services that consumers consider as serving similar purposes.

Answer 12

substitutes

Question 13

Mandatory payments to governments from consumers and producers.

Answer 13

taxes

Question 14

How do you calculate percentage change?

Answer 14

(Ending value - Beginning Value) /
Beginning value
x 100

Question 15

How do you calculate elasticity of demand?

Answer 15

Percentage change in quantity / Percentage change in price

Question 16

What determines the elasticity of demand?

Answer 16

number of substitutes, whether it is a necessity, percentage of income spent on good, length of time for adjustment to change of price

Question 17

A business should ______ (increase/decrease) the price of a good with an inelastic demand if it wants to increase revenues.

Answer 17

increase

Question 18

If demand is inelastic and prices increase, quantity will ____

Answer 18

decrease

Question 19

The graph for perfect inelastic demand would look ___

Answer 19

straight up and down

Question 20

The graph for perfectly elastic demand would look ____

Answer 20

flat straight across

Question 21

The primary influence on the price elasticity of supply is the ability of the producer to ____

Answer 21

increase production

Question 22

How do you calculate income elasticity?

Answer 22

Percentage change in quantity demanded / percentage change in income

Question 23

If income elasticity of demand is positive, the good is ____

Answer 23

a normal good

Question 24

An effective price ceiling is ____ the equilibrium price, while an effective price floor is ____ the equilibrium price (above or below?)

Answer 24

below; above

Question 25

If the government imposes an effective price ceiling in a market, will there be a surplus or shortage?

Answer 25

shortage

Question 26

When taxing goods, if the demand curve is inelastic then more of the tax will be paid for by ____ and less by ____

Answer 26

consumers; producers

Question 27

If demand is elastic, then the impact of a subsidy will be much ____ (less/greater) than if demand were inelastic

Answer 27

greater

Question 28

If elasticity of demand is greater than one (absolute value), then demand is ____. If it is less than one, it is ____.

Answer 28

elastic; inelastic

Question 29

Subsidies of goods and services will ____ the equilibrium price and ____ the equilibrium quantity.
(decrease/increase)

Answer 29

decrease; increase

Question 30

The income elasticity of an inferior good is ____.

Answer 30

negative