Chapter 5 Flashcards by Vicki schenk

What is the sign of price elasticity of demand?

Always negative

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How is price elasticity of demand calculated?

Percentage change in quantity / percentage change in price

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How is price elasticity of supply calculated?

Percentage change in quantity over percentage change in price.

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What indicates relatively elastic demand?

Large percentage change in quantity

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What is the most important reason for studying elasticities?

Pricing

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What should a band do if demand is elastic?

Cut the price

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What causes supply to shift right?

Cost-saving gains

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How is the tax burden of cigarette taxes primarily passed?

Higher prices

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What is the new market price after tax?

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What does quantity demanded (Qd) depend on?

Income, preferences, related goods, price

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What is the elasticity of labor supply for teenage workers?

Fairly elastic

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How many streaming subscribers did Netflix have in June 2013?

36 million

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What indicates elastic demand?

Elasticity greater than one

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

Slow response

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What does a price elasticity of demand of 0.45 indicate?

Inelastic demand

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

Much lower, inelastic

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What should a band do if demand is inelastic?

Raise the ticket price

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What happens if demand is inelastic?

Substantially lower prices

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

Pass tax burden to consumers

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What do sellers receive per unit sold after tax?

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What does quantity supplied (Qs) depend on?

Cost of production, price

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

Fairly inelastic

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What is inelastic demand?

Elasticity less than one

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

Substantial response

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What does the law of demand state?

Higher price = lower quantity demanded

How are elasticities typically represented?

As positive numbers

What are the two extreme cases of elasticity?

Zero and infinite

What happens to price and quantity when elasticity equals 1?

Equal percentage change

What occurs with unitary elasticity?

Revenue remains the same

What happens if demand is elastic?

Slightly lower prices

What characterizes demand for addictive substances?

Inelastic demand

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

A wedge

How is consumer tax incidence calculated?

Pc - Pe

What is income elasticity of demand?

Percentage change in quantity demanded / Percentage change in income

Elasticity of savings

Percentage change in savings / Percentage change in interest rates

What is the formula for calculating elasticity?

Percentage change in quantity/percentage change in price

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

Relatively inelastic

What does the law of supply state?

Higher price = higher quantity supplied

What is infinite elasticity?

Extreme response to price change

What happens to total revenue if demand is elastic?

Revenue falls

Effect of elastic demand and supply on tax revenue?

Lower tax revenue

How is seller tax incidence calculated?

Pe - Pp

Why are prices more volatile in the short run?

Inelastic supply and demand

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

Increases

What does unitary elasticity mean?

Equal percentage change in quantity

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

Relatively elastic

What does elasticity measure?

Responsiveness of variables

What does zero elasticity indicate?

No change in quantity

What happens to total revenue if demand is unitary?

Revenue unchanged

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

Decreases

How can we reduce cigarette demand?

Shift inelastic demand left

Result of introducing a tax?

Creates a price wedge

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

Consumers bear more

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

Inferior good

What does elasticity refer to?

Responsiveness

What happens to total revenue if demand is inelastic?

Revenue rises

What effect can poor weather have on farm product prices?

Raises prices

Effect of higher taxes on elastic demand for cigarettes?

Reduce quantity smoked substantially

What happens with elastic demand when tax is imposed?

Consumers reduce quantity

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

Shifts to the right

What happens if cigarette tax discourages consumption considerably?

Reduced revenue for government

What happens in (a) when demand is inelastic?

Costs passed to consumers

What happens with elastic supply when tax is imposed?

Sellers reduce quantity sold