Chapter 4 Using Supply and Demand
What is total revenue?
Total revenue it the price of the good multiplied by the quantity sold (TR= P x Q)
Does the price elasticity of demand vary along a linear demand curve?
A linear demand curve is more price elastic at higher price ranges and more price inelastic at lower price ranges, and it is unit elastic at the midpoint. Ed=1.
What is the relationship between total revenue and the price elasticity of demand?
If price demand is elastic, total revenue will vary inversely with a change in price. If demand is price inelastic, total revenue will vary in the same direction as a change in price.
How do we measure consumers' responses to price changes?
If the demand for a good is price elastic in the relevant range, quantity demanded is very responsive to a price change. If the demand for a good is relatively price inelastic, quantity demanded is not very responsive to change.
What are price ceilings?
Price ceilings are government-imposed maximum prices. If price ceilings are set below the market equilibrium price, shortages will result.
What are price controls?
Price controls involve government mandates to keep prices above or below the market determined equilibrium price.
What is price elasticity of demand?
Price elasticity of demand measure the percentage change in quantity demanded divided by the percentage change in price that caused it, moving along a demand curve.
What are price floors?
Price floors are government-imposed minimum prices. If price floors are set above the equilibrium price, surpluses will result.
How does time affect the supply elasticity?
Supply tends to be more elastic in the long run than in the short run.
What is a producer surplus?
Supply tends to be more elastic in the long run than in the short run.
What is the law of unintended consequences?
The law of unintended consequences states that the results of certain actions may not always be as clear as they initially appear.
What determines the price elasticity of demand?
The price elasticity of demand depends on: the availability of close substitutes, the proportion of income spent on the good, and the amount of time buyers have to respond to a price change.
What is the price elasticity of supply?
The price elasticity of supply measures the relative change in quantity supplied that results from a change in price. If the supply price elasticity is greater than 1, it is elastic; if it is less than 1, it is inelastic.
What is a consumer surplus?
The price elasticity of supply measures the relative change in the quantity supplied that results from a change in price. If the supply price elasticity is greater than 1, it is elastic; if it is less than 1 it's inelastic
How does the relative elasticity of supply and demand determine the tax burden?
The relative elasticity of supply and demand determines the distribution of the tax burden for a good. If demand is more elastic than supply, producers bear the greater burden of the tax; if supply is more elastic than the demand, consumers bear the greater burden.
How do we measure the total gains from trade?
The relative elasticity supply and demand determines the distribution of the tax burden for a good. If demand is more elastic than supply, producers bear the greater burden of the tax; if the supply is more elastic than the demand, consumers bear the greater burden.