ELASTICITIES

Question 1

what is elasticity?

Answer 1

a measure of the responsiveness of a variable to changes in price or any of the variable’s determinants.

Question 2

what is income elasticity of demand?

Answer 2

measures the responsiveness of quantity demanded to changes in income. it tells us how much the quantity demanded of a good or service changes in response to a change in income

Question 3

what is an indirect tax?

Answer 3

a tax paid by economic agents via their purchase of goods and services

• it adds to the cost of production for firms and will therefore shift the supply curve to the left and increase the price

Question 4

what is price elasticity of demand?

Answer 4

measures the responsiveness of quantity demanded to changes in price. it tells us how much the quantity demanded of a good or service changes in response to a change in its price

Question 5

what is price elasticity of supply?

Answer 5

measures the responsiveness of quantity supplied to changes in price. it tells us how much the quantity supplied of a good or service changes in response to a change in its price

Question 6

price elasticity of supply?

Answer 6

a change in price quickly results in a change in the quantity demanded

ie. calculating the sensitivity of supply with respect to increases or decreases in price

Question 7

what is price inelasticity of supply?

Answer 7

the change in price leads to a more than proportional change in the quantity supplied