Econ Chapter 6

greater than

the long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil.

income elasticity of demand

the percent change in the quantity of a good demanded when a consumer's income changes divided by the percent change in the consumer's income

price elasticity of demand

the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign)

total revenue

the total value of sales of a good or service. It is equal to the price multiplied by the quantity sold

the availability of close substitutes, whether the good is a necessity or a luxury, share of income spent on the good, and time elapsed since price change

what factors determine the price elasticity of demand?

the availability of inputs and time

what factors determine the price elasticity of supply?

pizza is a normal good

when joe's income is $100 per week, he spends $20 on pizza per week. when his income rises to $110 per week, he spends $25 per week on pizza. if the price of pizza remains constant, this information implies that, for joe:

income elastic demand

when the income elasticity of demand for a good is greater than 1

income inelastic demand

when the income elasticity of demand for a good is positive but less than 1

elastic demand

when the price elasticity of demand is greater than 1

inelastic demand

when the price elasticity of demand is less than 1

c) the elasticity of supply is zero in the short run because the short run supply curve is vertical

A hotel has a capacity of 100 rooms. which of the following statements best describes the elasticity of supply for rooms at this hotel? a) the supply is elastic at quantities above 100 rooms, but inelastic at quantities below 100 rooms b) the elasticity of supply is equal to 1 in the short run, but indefinitely elastic in the long run c) the elasticity of supply is zero in the short run because the short-run supply curve is vertical d) the supply is infinitely elastic in the short run, but perfectly elastic in the long run

cross price elasticity of demand

a measure of the effect of the change in the price of one good on the quantity demanded of the other; it is equal to the percent change in the quantity demanded of one good divided by the percent change in the price of another good

price elasticity of supply

a measure of the responsiveness of the quantity of a good supplied to the price of that good; the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve.

horizontal

a perfectly elastic supply curve is:

deadweight loss

an excise tax creates inefficiency in that the number of transactions in a market is reduced. because the tax discourages mutually beneficial transactions, there is ____ from a tax.

each unit of a good or service that is sold

an excise tax is charged on:

substitute goods

if the price of chocolate covered peanuts increases and the demand for strawberry licorice twists increases, this indicates that these two goods are:

it discourages drinking alcohol while raising revenue for the government

state governments place excise taxes on alcohol because:

substitutes complements

suppose the cross price elasticity of demand for butter and margarine is equal to 0.96 while the cross price elasticity for water and lemon is -0.13. this means that butter and margarine are ____ while water and lemons are ____.

lower the profits of ice cream suppliers

suppose the govt decides to fight obesity in america by imposing an excise tax on the saturated fat content of food. the effect of this tax would be:

excise tax

tax on sales of a good or service

perfectly elastic supply

the case in which even a tiny increase or reduction in the price will lead to very large changes in the quantity supplied, so that the price elasticity of supply is infinite; the perfectly elastic supply curve is a horizontal line

unit elastic demand

the case in which the price elasticity of demand is exactly 1

perfectly inelastic supply

the case in which the price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied; the perfectly inelastic supply curve is a vertical line

perfectly inelastic demand

the case in which the quantity demanded does not respond at all to changes in the price; the demand curve is a vertical line

electricity and natural gas are substitutes

the cross price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. this implies that:

inferior good

the demand for this good decreases as income increases