Module 3: Elasticity and Its Application Flashcards
1. Calculate the elasticity of demand and supply; 2. Analyze the application of demand and supply to price controls; 3. Explain the relationship between buyer’s willingness to pay for a good and demand curve; 4. Discuss the relationship between seller’s costs of production and the supply curve; 5. Measure the consumer and producer surpluses.
The flatter the curve,
the bigger the elasticity.
The steeper the curve
the smaller the elasticity.
Elasticity is 0
Perfectly inelastic demand
Elasticity is <1.
Inelastic demand
Elasticity is 1.
Unit elastic demand
Elasticity is >1.
Elastic demand
Elasticity is infinity.
Perfectly elastic demand
measures the response of demand for one good to changes in the price of another good.
cross-price elasticity of demand
the study of how the allocation of resources affects economic well-being
Welfare economics
the amount a buyer is willing to pay minus the buyer actually pays
Consumer surplus
the price of a good that prevails in the world market for that good.
world price
When a country exports a good
domestic producers of the good are better off and domestic consumers of the good are worse off
When a country imports a good
domestic consumers of the good are better off and domestic producers of the good are worse off.
a tax on goods produced abroad and sold domestically.
Tariff
It is a limit on the quantity of a good that can be produced abroad and sold domestically
Import Quota
