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Microeconomics > Chapter 6 (6.3-6.6) > Flashcards

Chapter 6 (6.3-6.6) Flashcards

1
Q

Substitutability and price elasticy of demand with example

A

larger number the substitute goods available, greater the price elasticity of demand. Ex Candy Bars, glasses or contacts inelastic

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2
Q

proportion of income and price elastic of demand with example

A

greater the proportion of income spent on goods, greater the price elasticity of demand. Ex price increase in gum is a small change on consumer income= inelastic
ex price increase on automobile insurance is big change on consumer income therefore is elastic

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3
Q

Luxury Goods

A

Elastic ex car, vacation,

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4
Q

Necessity Goods

A

Inelastic ex gas, electricity, internet

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5
Q

Time

A

longer period under construction= more elastic. Consumers need time to adjust to prices

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6
Q

Large Crop Yields

A

Most farm products inelastic. Increase in supply affects price and TR negatively. Elastic if production restricted

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7
Q

Sales Tax and government

A

Governments put taxes on necessities and inelastic goods and services gain highest Total Revenue. Tax on elastic goods=less revenue

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8
Q

Decriminalization of Illegal Drugs

A

demand of addicts are inelastic, demand for drugs are elastic

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9
Q

Price Elasticity of supply

A

measures responsiveness of quantity supplied to a change in price

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10
Q

elastic supply

A

producers responsive to price change

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11
Q

inelastic supply

A

producers unresponsive to price change

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12
Q

Es percent formula

A

percent change in quantity supplied of product x / percentage change in price of product x

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13
Q

Can Elasticity of Supply be negative

A

no

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14
Q

Es > 1

A

supply elastic %change in QS > %change in price

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15
Q

Es = 1

A

supply is unit elastic %change in QS = %change in price

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16
Q

Es < 1

A

supply is inelastic %change in QS < %change in price

17
Q

Elasticity of supply depends on how easily……

quick=
slow=

A

suppliers can shift resources to alternative uses
quick=elastic
slow=inelastic

18
Q

Immediate Market Period

A

length of time over which produces are unable to respond to change in price with a change in quantity supplied (perfectly inelastic)

19
Q

Short Run and elasticity of supply

A

period too short to change plant capacity but long enough to current plant capacity more or less intensively. More elastic than immediate market period

20
Q

Long run and elasticity of supply

A

period long enough for firms to adjust their plant sizes and for firms to enter or exit industry

21
Q

is there a total revenue test for elasticity of supply

A

no

22
Q

supply relationship with price

A

supply shows direct relationship between price and amount supplied.

23
Q

Antiques and elasticity of supply

A

higher price in antique is from strong demand, limited supply therefore is inelastic.

24
Q

Reproductions (designed to look antique)

A

elastic supply, increase in demand raises price slightly and so companies supply more

25
Q

Volatile Gold prices

A

supply of gold inelastic because increase or decrease in price does not yield more or less gold supplied

26
Q

cross elasticity of demand Exy

A

measures how responsive consumer purchases of one product x are to a change in price of some product y

27
Q

Exy > 0 (positve)

A

substitute goods: sales of product x move in same direction as y price

28
Q

Exy < 0 (negative)

A

complementary goods: quantity demanded of product x is opposite to change in price of y

29
Q

Exy is near equalling 0

A

independent good: goods are unrelated

30
Q

Income Elasticity of Demand

A

measures degree to which consumers demands change with respect to change in their income

31
Q

income elasticity positive

A

normal good: more demanded as income rises

32
Q

income elasticity negative

A

inferior goods: less demanded as income rises

33
Q

Income Elastic Insights

A

High income elasticities (luxury) affected by recession
Low income inelasticities (necessities) least affected by recession
( Income falls, we cannot stop buying necessities but we can stop buying luxuries)

34
Q

Incident of a tax with demand

A

inelastic demand results in tax burden on consumer

elastic demand results in tax burden on producer

35
Q

incident of a tax with supply

A

inelastic supply results in tax burden on producer

elastic supply results in tax burden on consumer

36
Q

Efficiency Loss of a Tax

A

deadweight, tax reduces production and consumption below their economic efficiency

Microeconomics (8 decks)

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