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Microeconomics > Elasticity > Flashcards

Elasticity Flashcards

1
Q

What is being measured when the percentage change in quantity demanded is divided by the percentage change in price?

A

Price elasticity of demand

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2
Q

Why are percentages used to calculate price elasticity of demand?

A

So that the type of units can be ignored.

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3
Q

If a 10% increase in price leads to a 5% decrease in the quantity demand, the demand for the good is said to be _____.

A

Inelastic

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4
Q

How is a buyer’s responsiveness to price changes measured?

A

By the price elasticity of demand coefficient

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5
Q

______ is the ease of switching from one good to another.

A

Substitutability

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6
Q

What term describes demand when the quantity demanded is NOT very responsive to changes in price?

A

Inelastic

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7
Q

What is being measured when the percentage change in quantity demanded is divided by the percentage change in price?

A

Price elasticity of demand

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8
Q

True or false: A product that is narrowly defined is less elastic than a product that is broadly defined

A

False

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9
Q

Which of the following is a determinant of the price elasticity of demand?

A

Substitutability

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10
Q

The proportion of income allocated to a particular good or service is a determinant of:

A

the price elasticity of demand

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11
Q

When the time period under consideration is shorter, product demand is generally more _____.

A

Inelastic

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12
Q

The amount of time that has passed since a price change does not affect elasticity.

A

False

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13
Q

What term describes demand when the percentage change in quantity is exactly the same as the percentage change in price?

A

Unitary elasticity

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14
Q

Which Greek letter is used to represent elasticity?

A

Epsilon ε

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15
Q

Why will the coefficient for the price elasticity of demand always be a negative number?

A

Because price and quantity demanded are inversely related.

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16
Q

Which of the following will make the demand for a product more inelastic?

A

If it is a small percentage of income.

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17
Q

Demand for Reebok shoes is more ______ than overall demand for shoes.

A

Elastic

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18
Q

If the original price was $30 and the new price is $50 what is the percentage change in price (use the average method)?

A

50

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19
Q

A brand name product is more _____ defined than a product in general and thus has a more ______ demand

A

narrowly; elastic

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20
Q

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?

A

Increase the tuition since that will lead to an increase in total revenue.

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21
Q

A demand curve that is drawn relatively steep illustrates a(n) _____ demand.

A

Inelastic

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22
Q

A demand curve that is drawn as a rectangular parabola illustrates a(n) _____ demand.

A

unit elastic

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23
Q

If a change in price and total revenue move in the same direction, then demand is _____

A

Inelastic

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24
Q

A demand curve that is drawn relatively flat illustrates a(n) _____ demand.

A

Elastic

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25
Q

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?

A

Decrease the price since they will sell more cars and this will lead to an increase in total revenue.

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26
Q

A relatively inelastic demand (but is not perfectly inelastic) is drawn as a ______ line.

A

steep downward sloping

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27
Q

Slope and elasticity are not the same for a demand curve.

A

True

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28
Q

Over the inelastic range of the demand curve, a decrease in price will lead to a(n) ____.

A

decrease in total revenue

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29
Q

If demand is unit elastic and the price increases, what will happen to total revenue?

A

It will not change

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30
Q

At the mid-point of a straight-line demand curve, the price elasticity of demand has a value of

A

One

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31
Q

A relatively elastic demand is drawn as a ______ line.

A

shallow downward sloping

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32
Q

True or false: Total revenue is maximized at the mid-point of a straight-line demand curve.

A

True

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33
Q

Moving up and down a demand curve changes the elasticity of demand.
True false question.

A

True

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34
Q

Over the elastic range of the demand curve, a decrease in price will lead to a(n) ____.

A

increase in total revenue

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35
Q

At the lower half of any straight line demand curve the demand is _____.

A

Inelastic

36
Q

A demand curve that is drawn as a vertical lineillustrates a(n) _____ demand.

A

Perfectly inelastic

37
Q

At what point on a straight-line demand curve is total revenue maximized?

A

At mid-point

38
Q

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 _____.

A

$0; unit elastic

39
Q

True or false: The price elasticity of demand will change as you move along the demand curve.

A

True

40
Q

At the upper half of any straight line demand curve, the demand is _____.

A

Elastic

41
Q

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 _____.

A
  • $50,000; elastic
42
Q

A tax on a specific product such as alcohol is often referred to as a(n) _____ tax.

A

Excise

43
Q

If the demand for a product is inelastic then the major burden of a sales tax is on the producer.

A

True

44
Q

The steeper a demand curve, the higher the percentage of tax paid by consumers.

A

True

45
Q

Which of the following describes the relationship between inelastic demand and the burden of a tax on a product?

A

The more inelastic the demand for a product, the greater the burden of the tax on the consumer.

46
Q

Governments place heavy excise taxes on certain goods because

A

demand for certain products is relatively inelastic so the tax does not reduce sales by much and tax revenue stays high.

47
Q

Which of the following describes the relationship between demand elasticity and the burden of a tax?

A

The more elastic the demand for a product, the more the burden of a tax on the product falls on producers.

48
Q

The more inelastic a demand curve, the higher the percentage of tax paid by consumers.

A

True

49
Q

If the demand for a product is inelastic, then the major burden of a sales tax is on the ________

A

Consumer

50
Q

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:

A

governments impose heavy excise taxes on these products

51
Q

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 _____.

A

+ $50,000; inelastic

52
Q

Illegal drugs, such as cocaine and heroin, are considered to have what kind of price elasticity of demand?

A

Inelastic

53
Q

Which of the following describes the relationship between inelastic demand and the burden of a tax on a product?

A

The more inelastic the demand for a product, the greater the burden of the tax on the consumer.

54
Q

What will happen to the crime rate when the price of illegal drugs increases substantially

A

The crime rate will go up since drug users will resort to other crimes to pay for the higher priced drugs.

55
Q

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 ______.

A

inelastic; tax revenues

56
Q

In the market for illegal drugs, what happens when there is a crackdown on these activities?

A

Supply shifts to the left and since demand is inelastic the price increases considerably.

57
Q

Why might a bad harvest be good for farmers?

A

Because their total revenue increases a lot.

58
Q

Basic farm commodities, such as wheat, are considered to have what kind of price elasticity of demand?

A

Inelastic

59
Q

What is being measured when the change in quantity supplied is divided by the change in price?

A

Elasticity of supply

60
Q

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

A

3

61
Q

A relatively elastic supply (but is not perfectly inelastic) is drawn as a ______ line.

A

flat upward sloping

62
Q

What is the elasticity of supply for a firm that uses complicated technology?

A

Inelastic

63
Q

The elasticity of supply shows the responsiveness of supply of a good or service when the ______ changes

A

Price

64
Q

Why is the supply curve more elastic in the long run than in the short run?

A

Because firms have time to adjust their plant sizes

65
Q

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

A

5

66
Q

A supply curve that is drawn relatively flat illustrates a(n) _____ supply.

A

Elastic

67
Q

What is the shape of the market period supply curve?

A

A vertical straight line.

68
Q

A relatively inelastic supply (but is not perfectly inelastic) is drawn as a ______ line.

A

steep upward sloping

69
Q

What are the shapes of the three supply curves for the three different time periods?

A

A straight vertical line.
A steep upward-sloping curve
A shallow upward-sloping curve

70
Q

The steeper the supply curve, the (more/less)

______(one word) is the supply elasticity.

A

Less

71
Q

Ticket scalping (the buying and reselling of tickets), from the sellers’ perspective, is an application of _____.

A

price elasticity of supply

72
Q

When supply is fixed, the price of the good is determined by the government.

A

False - the price will be determined by demand

73
Q

A supply curve that is drawn relatively flat illustrates a(n) _____ supply.

A

Elastic

74
Q

The income elasticity of demand shows the responsiveness of demand for a good or service when an individual’s changes.

A

Income

75
Q

As income increases, what will happen to the demand curve for an inferior good?

A

It will shift leftward.

76
Q

For a sporting event, where the supply is fixed, what determines the price of the tickets?

A

The demand

77
Q

The income elasticity of demand measures the responsiveness of demand to a change in _____.

A

Earnings

78
Q

If the income elasticity of demand is 1.5, what is demand?

A

Income elastic

79
Q

A product with an income elasticity of +0.67 would be considered:

A

Income inelastic

80
Q

As income increases, what will happen to the demand curve for a normal good?

A

It will shift rightward.

81
Q

The cross elasticity of demand measures _____.

A

the responsiveness of quantity demanded of one product to a change in the price of some other product

82
Q

If the income elasticity of demand is -0.5, what kind of product is this?

A

An inferior product

83
Q

The percentage change in quantity demanded of good X divided by the percentage change in the price of product Y is known as the:

A

cross elasticity of demand

84
Q

If coffee and tea are substitutes, what can you conclude about their elasticity from this information?

A

Their cross price elasticity will be a positive number.

85
Q

If coffee and cream are complements, what can you conclude about their elasticity from this information?

A

Their cross price elasticity will be a negative number.

86
Q

If coffee and cream are complements, what can you conclude about their elasticity from this information?

A

Their cross price elasticity will be a negative number.

Microeconomics (10 decks)

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