Micro Economics 1

Question 1

Substitues

Answer 1

Increase in price of one good, increases the demand for the other good

Question 2

Complements

Answer 2

Increase in price on one good, decreases the demand on the other good

Question 3

Normal Goods

Answer 3

As income increases, demand increases

Question 4

Inferior Goods

Answer 4

As income increases, demand decreases

Question 5

Elastic Demand

Answer 5

Demand is sensitive to changes in price

Question 6

Characteristics of Elastic Goods

Answer 6

Many substitutes, luxuries, elasticity coefficient more than 1

Question 7

INelastic Demand

Answer 7

Demand is INsensitive to a change in price

Question 8

Characteristics of Inelastic Goods

Answer 8

Few substitutes, necessities, elasticity coefficient less than 1

Question 9

Calculate Elasticity of Demand Coefficient

Answer 9

% Change in QD / % Change in price

Question 10

What is the CROSS PRICE ELASTICITY OF DEMAND formula used for?

Answer 10

Determine whenever Substitutes or Complements. (+)Substitute (-)Complement

Question 11

How to calculate the Cross Price Elasticity?

Answer 11

% change in quantity of product “A” / % change in price product “B”

Question 12

What is the Income Elasticity used for?

Answer 12

To determine if Normal Good or Inferior Good?

Question 13

Price Ceiling

Answer 13

Maximum Price creates Deadweight Welfare Loss

Question 14

Price Floor

Answer 14

Minimum Price creates Deadweight Welfare Loss, inefficient

Question 15

ad valorem tax

Answer 15

(assessed by value) a tax that orientates on the value of an asset (most popularly real estate) and is calculated in percantage

Question 16

variable resources

Answer 16

can be changed in the short run/change with more output produced