Q4-Price Controls and Elasticity

Question 1

define elasticity

Answer 1

Elasticity measures the reaction of consumers to price changes; more specifically elasticity measures the responsiveness of quantity demanded to a change in price

Question 2

What makes a product inelastic?

Answer 2

even if price increases, demand barely changes

Question 3

What makes a product elastic?

Answer 3

demand changes greatly with a price change

Question 4

What are the factors that determine Elasticity?

Answer 4

• availability of substitutes
• importance/percentage of budget
• durability
• time frame
• necessitie vs. luxuries

Question 5

What is the formula to find elasticity?

Answer 5

[percentage change in quantity demanded] / [percentage change in price]

Question 6

When is a product inelastic, in terms of elasticity (number)?

Answer 6

Less than one

Question 7

When is a product elastic, in terms of elasticity(number)?

Answer 7

More than 1

Question 8

When the elasticity value is 1 the product is _______

Answer 8

unitary elastic

Question 9

When the elasticity value is 0 the product is _________

Answer 9

perfectly inelastic

Question 10

when the elasticity value is infinite the product is ________

Answer 10

perfectly elastic

Question 11

What is a perfectly competitive market?

Answer 11

a market with no dominant firms

Question 12

the market system is also known as the ____________

Answer 12

Price System

Question 13

The Market system performs what two important functions?

Answer 13

• price rationing

- resource allocation

Question 14

Define price rationing

Answer 14

process by which the maret system allocates goods and services to consumers when quantity demanded exceed quantity supplied

Question 15

Why are price controls implemented?

Answer 15

Correct what is seen as an undesirable market

Question 16

Who introduces price controls?

Answer 16

government

Question 17

Define price ceilings and give an example

Answer 17

Price ceiling is a maximum price that sellers may charge for a goof usually set by government
- ex. rent control, national emergencies

Question 18

Price ceilings cause _______

Answer 18

shortages

Question 19

What are some examples of non-price rationing systems?

Answer 19

queuing, producers preference, rationing coupons

Question 20

What’s the problem with non-price rationing systems?

Answer 20

excess demand is controlled but not eliminated

Question 21

Define price floors and give an example

Answer 21

minimum prie that sellers may charge for a good, usually set by governemnt
-ex. agriculture, minimum wage

Question 22

Price floors cause ________

Answer 22

surpluses

Question 23

How do you get rid of a surplus?

Answer 23

• store it
• convert it
• sell it abroad at reduced price (can be termed dumping and can be illegal)
• donate it
• destroy it