Elasticity Flashcards
What is being measured when the percentage change in quantity demanded is divided by the percentage change in price?
Price elasticity of demand
Why are percentages used to calculate price elasticity of demand?
So that the type of units can be ignored.
If a 10% increase in price leads to a 5% decrease in the quantity demand, the demand for the good is said to be _____.
Inelastic
How is a buyer’s responsiveness to price changes measured?
By the price elasticity of demand coefficient
______ is the ease of switching from one good to another.
Substitutability
What term describes demand when the quantity demanded is NOT very responsive to changes in price?
Inelastic
What is being measured when the percentage change in quantity demanded is divided by the percentage change in price?
Price elasticity of demand
True or false: A product that is narrowly defined is less elastic than a product that is broadly defined
False
Which of the following is a determinant of the price elasticity of demand?
Substitutability
The proportion of income allocated to a particular good or service is a determinant of:
the price elasticity of demand
When the time period under consideration is shorter, product demand is generally more _____.
Inelastic
The amount of time that has passed since a price change does not affect elasticity.
False
What term describes demand when the percentage change in quantity is exactly the same as the percentage change in price?
Unitary elasticity
Which Greek letter is used to represent elasticity?
Epsilon ε
Why will the coefficient for the price elasticity of demand always be a negative number?
Because price and quantity demanded are inversely related.
Which of the following will make the demand for a product more inelastic?
If it is a small percentage of income.
Demand for Reebok shoes is more ______ than overall demand for shoes.
Elastic
If the original price was $30 and the new price is $50 what is the percentage change in price (use the average method)?
50
A brand name product is more _____ defined than a product in general and thus has a more ______ demand
narrowly; elastic
It has been determined that the price elasticity of demand for university tuition is 0.85. The school is considering a tuition increase to help off set rising costs. What would you advise the school to do?
Increase the tuition since that will lead to an increase in total revenue.
A demand curve that is drawn relatively steep illustrates a(n) _____ demand.
Inelastic
A demand curve that is drawn as a rectangular parabola illustrates a(n) _____ demand.
unit elastic
If a change in price and total revenue move in the same direction, then demand is _____
Inelastic
A demand curve that is drawn relatively flat illustrates a(n) _____ demand.
Elastic
You work for a car company who are considering raising the price of their new cars. You find that the price elasticity of demand is 2.0, what would you advise them to do?
Decrease the price since they will sell more cars and this will lead to an increase in total revenue.
A relatively inelastic demand (but is not perfectly inelastic) is drawn as a ______ line.
steep downward sloping
Slope and elasticity are not the same for a demand curve.
True
Over the inelastic range of the demand curve, a decrease in price will lead to a(n) ____.
decrease in total revenue
If demand is unit elastic and the price increases, what will happen to total revenue?
It will not change
At the mid-point of a straight-line demand curve, the price elasticity of demand has a value of
One
A relatively elastic demand is drawn as a ______ line.
shallow downward sloping
True or false: Total revenue is maximized at the mid-point of a straight-line demand curve.
True
Moving up and down a demand curve changes the elasticity of demand.
True false question.
True
Over the elastic range of the demand curve, a decrease in price will lead to a(n) ____.
increase in total revenue
At the lower half of any straight line demand curve the demand is _____.
Inelastic
A demand curve that is drawn as a vertical lineillustrates a(n) _____ demand.
Perfectly inelastic
At what point on a straight-line demand curve is total revenue maximized?
At mid-point
Originally the price of a bottle of wine was $9 and 1 million bottles are sold. The price increases to $10 and the quantity of wine sold falls to 900,000 bottles. The change in total revenue is _____ and the elasticity of demand is _____.
$0; unit elastic
True or false: The price elasticity of demand will change as you move along the demand curve.
True
At the upper half of any straight line demand curve, the demand is _____.
Elastic
Originally the price of gas is $0.90 per litre and 1 million litres of gas are sold. The price increases to $1.00 and the quantity of gas sold falls to 850,000 litres. The change in total revenue is _____ and the elasticity of demand is _____.
- $50,000; elastic
A tax on a specific product such as alcohol is often referred to as a(n) _____ tax.
Excise
If the demand for a product is inelastic then the major burden of a sales tax is on the producer.
True
The steeper a demand curve, the higher the percentage of tax paid by consumers.
True
Which of the following describes the relationship between inelastic demand and the burden of a tax on a product?
The more inelastic the demand for a product, the greater the burden of the tax on the consumer.
Governments place heavy excise taxes on certain goods because
demand for certain products is relatively inelastic so the tax does not reduce sales by much and tax revenue stays high.
Which of the following describes the relationship between demand elasticity and the burden of a tax?
The more elastic the demand for a product, the more the burden of a tax on the product falls on producers.
The more inelastic a demand curve, the higher the percentage of tax paid by consumers.
True
If the demand for a product is inelastic, then the major burden of a sales tax is on the ________
Consumer
Since demand for certain products is relatively inelastic, a tax on these products does not reduce sales by much and tax revenues stay high. This is the reason why:
governments impose heavy excise taxes on these products
Originally the price of gas is $0.90 per litre and 1 million litres of gas are sold. The price increases to $1.00 and the quantity of gas sold falls to 950,000 litres. The change in total revenue is _____ and the elasticity of demand is _____.
+ $50,000; inelastic
Illegal drugs, such as cocaine and heroin, are considered to have what kind of price elasticity of demand?
Inelastic
Which of the following describes the relationship between inelastic demand and the burden of a tax on a product?
The more inelastic the demand for a product, the greater the burden of the tax on the consumer.
What will happen to the crime rate when the price of illegal drugs increases substantially
The crime rate will go up since drug users will resort to other crimes to pay for the higher priced drugs.
Gasoline, alcohol, tobacco products like cigarettes, and cell-phone usage are all products that are considered to have ______ demands and therefore are taxed heavily because of their ability to generate ______.
inelastic; tax revenues
In the market for illegal drugs, what happens when there is a crackdown on these activities?
Supply shifts to the left and since demand is inelastic the price increases considerably.
Why might a bad harvest be good for farmers?
Because their total revenue increases a lot.
Basic farm commodities, such as wheat, are considered to have what kind of price elasticity of demand?
Inelastic
What is being measured when the change in quantity supplied is divided by the change in price?
Elasticity of supply
Suppose that a company will produce 100 cars per week at a price of $100,000 each but would produce 300 per week at $140,000. The co-efficient of the elasticity of supply is
3
A relatively elastic supply (but is not perfectly inelastic) is drawn as a ______ line.
flat upward sloping
What is the elasticity of supply for a firm that uses complicated technology?
Inelastic
The elasticity of supply shows the responsiveness of supply of a good or service when the ______ changes
Price
Why is the supply curve more elastic in the long run than in the short run?
Because firms have time to adjust their plant sizes
Suppose that a company will produce 100 cars per week at a price of $90,000 each but would produce 300 per week at $110,000. The co-efficient of the elasticity of supply is
5
A supply curve that is drawn relatively flat illustrates a(n) _____ supply.
Elastic
What is the shape of the market period supply curve?
A vertical straight line.
A relatively inelastic supply (but is not perfectly inelastic) is drawn as a ______ line.
steep upward sloping
What are the shapes of the three supply curves for the three different time periods?
A straight vertical line.
A steep upward-sloping curve
A shallow upward-sloping curve
The steeper the supply curve, the (more/less)
______(one word) is the supply elasticity.
Less
Ticket scalping (the buying and reselling of tickets), from the sellers’ perspective, is an application of _____.
price elasticity of supply
When supply is fixed, the price of the good is determined by the government.
False - the price will be determined by demand
A supply curve that is drawn relatively flat illustrates a(n) _____ supply.
Elastic
The income elasticity of demand shows the responsiveness of demand for a good or service when an individual’s changes.
Income
As income increases, what will happen to the demand curve for an inferior good?
It will shift leftward.
For a sporting event, where the supply is fixed, what determines the price of the tickets?
The demand
The income elasticity of demand measures the responsiveness of demand to a change in _____.
Earnings
If the income elasticity of demand is 1.5, what is demand?
Income elastic
A product with an income elasticity of +0.67 would be considered:
Income inelastic
As income increases, what will happen to the demand curve for a normal good?
It will shift rightward.
The cross elasticity of demand measures _____.
the responsiveness of quantity demanded of one product to a change in the price of some other product
If the income elasticity of demand is -0.5, what kind of product is this?
An inferior product
The percentage change in quantity demanded of good X divided by the percentage change in the price of product Y is known as the:
cross elasticity of demand
If coffee and tea are substitutes, what can you conclude about their elasticity from this information?
Their cross price elasticity will be a positive number.
If coffee and cream are complements, what can you conclude about their elasticity from this information?
Their cross price elasticity will be a negative number.
If coffee and cream are complements, what can you conclude about their elasticity from this information?
Their cross price elasticity will be a negative number.
