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ECON111 > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

What is the sign of price elasticity of demand?

A

Always negative

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2
Q

How is price elasticity of demand calculated?

A

Percentage change in quantity / percentage change in price

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3
Q

How is price elasticity of supply calculated?

A

Percentage change in quantity over percentage change in price.

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4
Q

What indicates relatively elastic demand?

A

Large percentage change in quantity

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5
Q

What is the most important reason for studying elasticities?

A

Pricing

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6
Q

What should a band do if demand is elastic?

A

Cut the price

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7
Q

What causes supply to shift right?

A

Cost-saving gains

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8
Q

How is the tax burden of cigarette taxes primarily passed?

A

Higher prices

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9
Q

What is the new market price after tax?

A

Pc

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10
Q

What does quantity demanded (Qd) depend on?

A

Income, preferences, related goods, price

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11
Q

What is the elasticity of labor supply for teenage workers?

A

Fairly elastic

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12
Q

How many streaming subscribers did Netflix have in June 2013?

A

36 million

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13
Q

What indicates elastic demand?

A

Elasticity greater than one

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14
Q

How do supply and demand react to price changes in the short run?

A

Slow response

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15
Q

What does a price elasticity of demand of 0.45 indicate?

A

Inelastic demand

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16
Q

What happens to the elasticity measure at the bottom of the demand curve?

A

Much lower, inelastic

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17
Q

What should a band do if demand is inelastic?

A

Raise the ticket price

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18
Q

What happens if demand is inelastic?

A

Substantially lower prices

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19
Q

What can the government do in a market with inelastic demand?

A

Pass tax burden to consumers

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20
Q

What do sellers receive per unit sold after tax?

A

Pp

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21
Q

What does quantity supplied (Qs) depend on?

A

Cost of production, price

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22
Q

Wage elasticity of labor supply for adults in their thirties and forties

A

Fairly inelastic

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23
Q

What is inelastic demand?

A

Elasticity less than one

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24
Q

How do supply and demand react to price changes in the long run?

A

Substantial response

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25
Q

What does the law of demand state?

A

Higher price = lower quantity demanded

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26
Q

How are elasticities typically represented?

A

As positive numbers

27
Q

What are the two extreme cases of elasticity?

A

Zero and infinite

28
Q

What happens to price and quantity when elasticity equals 1?

A

Equal percentage change

29
Q

What occurs with unitary elasticity?

A

Revenue remains the same

30
Q

What happens if demand is elastic?

A

Slightly lower prices

31
Q

What characterizes demand for addictive substances?

A

Inelastic demand

32
Q

What does an excise tax create between consumer price and producer price?

A

A wedge

33
Q

How is consumer tax incidence calculated?

A

Pc - Pe

34
Q

What is income elasticity of demand?

A

Percentage change in quantity demanded / Percentage change in income

35
Q

Elasticity of savings

A

Percentage change in savings / Percentage change in interest rates

36
Q

What is the formula for calculating elasticity?

A

Percentage change in quantity/percentage change in price

37
Q

What is the elasticity of demand and supply in the short run?

A

Relatively inelastic

38
Q

What does the law of supply state?

A

Higher price = higher quantity supplied

39
Q

What is infinite elasticity?

A

Extreme response to price change

40
Q

What happens to total revenue if demand is elastic?

A

Revenue falls

41
Q

Effect of elastic demand and supply on tax revenue?

A

Lower tax revenue

42
Q

How is seller tax incidence calculated?

A

Pe - Pp

43
Q

Why are prices more volatile in the short run?

A

Inelastic supply and demand

44
Q

What happens to quantity demanded when income rises for normal goods?

A

Increases

45
Q

What does unitary elasticity mean?

A

Equal percentage change in quantity

46
Q

What is the elasticity of demand and supply in the long run?

A

Relatively elastic

47
Q

What does elasticity measure?

A

Responsiveness of variables

48
Q

What does zero elasticity indicate?

A

No change in quantity

49
Q

What happens to total revenue if demand is unitary?

A

Revenue unchanged

50
Q

What happens to farmers’ total revenue when there is a surge in production?

A

Decreases

51
Q

How can we reduce cigarette demand?

A

Shift inelastic demand left

52
Q

Result of introducing a tax?

A

Creates a price wedge

53
Q

Who bears the tax incidence when supply is more elastic than demand?

A

Consumers bear more

54
Q

What do we call a good with negative income elasticity of demand?

A

Inferior good

55
Q

What does elasticity refer to?

A

Responsiveness

56
Q

What happens to total revenue if demand is inelastic?

A

Revenue rises

57
Q

What effect can poor weather have on farm product prices?

A

Raises prices

58
Q

Effect of higher taxes on elastic demand for cigarettes?

A

Reduce quantity smoked substantially

59
Q

What happens with elastic demand when tax is imposed?

A

Consumers reduce quantity

60
Q

What happens to the demand curve for a normal good when income increases?

A

Shifts to the right

61
Q

What happens if cigarette tax discourages consumption considerably?

A

Reduced revenue for government

62
Q

What happens in (a) when demand is inelastic?

A

Costs passed to consumers

63
Q

What happens with elastic supply when tax is imposed?

A

Sellers reduce quantity sold

ECON111 (34 decks)

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