econ 6

when the price is high and the quantity demanded is low, this portion of the demand curve is elastic. Why?

because a $1 reduction in price is a smaller percentage change when the price is high than when it is low. Similarly, an increase in 2 units of output is a larger percentage change when quantity demanded is lower. So we have a relatively small change in price leading to a proportionately greater change in quantity demanded—that is, demand is elastic on this portion of the demand curve.

For the most part, the price elasticity of demand depends on the availability of __________;, the ______________ spent on the good, and the amount of _____ people have to adapt to a price change.

close substitutes, proportion of income, time

When demand is price inelastic, total revenues will _____ as the price declines because the percentage increase in the _________ is less than the percentage reduction in price.

fall, quantity demanded

An increase in price will cause a firm's total revenue to increase if demand is price elastic

false

so collectively wheat farmers will experience a decline in total revenue despite the good news.

from relatively elastic at higher price ranges to relatively inelastic at lower price ranges.

What is the income elasticity of demand?

income elasticity of demand is a measure of the relationship between a relative change in income and the consequent relative change in demand, ceteris paribus

For a given increase in price, the greater the elasticity of supply, the greater the resulting

increase in quantity supplied.

If demand was relatively inelastic in the short run, but elastic in the long run, a price increase would total revenue in the short run and total revenue in the long run.

increase; decrease

Price elasticity of demand is said to be greater

the longer the period of time consumers have to adjust to price changes.

The smaller the proportion of income spent on a good,

the lower its elasticity of demand.

What is the price elasticity of supply?

the measure of the sensitivity of the quantity supplied to changes in price of a good

What determines the price elasticity of demand?

the more close substitutes

income elasticity of demand

the percentage change in demand divided by the percentage change in consumer's income income elasticity of demand = % change in demand / % change in income

if the income elasticity is positive

then the good in question is a normal good because income and demand move in the same direction

A decrease in price will cause a firm's total revenue to decrease if demand is price elastic

true

what kind of relationship is between price and total revenue

negative relationship

Price elasticity of demand is defined as the change in quantity demanded divided by the change in price.

percentage; percentage

The price elasticity of demand is defined as the percentage change in ____________ divided by the percentage change in______

quantity demanded: price.

The price elasticity of supply is defined as the percentage change in the ____________divided by the percentage change in _______

quantity supplied ; price

When demand is price elastic, total revenues will _____ as the price declines because the percentage increase in the _____________ is greater than the percentage reduction in price.

rise, quantity demanded

Which of the following will not tend to increase the elasticity of demand for a good?

An increase in the availability of close substitutes An increase in the amount of time people have to adjust to a change in the price An increase in the proportion of income spent on the good

Why do economists emphasize elasticity at the current price?

Because for most demand (and supply) curves, the price elasticity varies along the curve.

Which of the following would tend to have the most elastic demand curve?

Chevrolet automobiles

What does it mean to say the elasticity of supply for one good is greater than that for another?

For the elasticity of supply for one good to be greater than for another, the percentage increase in quantity supplied that results from a given percentage change in price will be greater for the first good than for the second.

What does it mean if the supply of elasticity is less than 1? greater than 1?

Goods with a supply elasticity that is less than are said to be inelastic in supply. In other words, a 1 percent change in the price of these goods will induce a proportionately smaller change in the quantity supplied.

In the graph below, a tax increase would be paid:

Largely by the buyers

Total revenue (TR)

TR= PxQ

Which of the following statements is true?

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 is inelastic. Supply tends to be more elastic in the long run than in the short run. The relative elasticity of supply and demand determines the distribution of the tax burden for a good.

Which of the following statements is true?

The price elasticity of supply measures the relative change in the quantity supplied that results from a change in price. When supply is relatively elastic, a 10 percent change in price will result in a greater than 10 percent change in quantity supplied. Goods with a supply elasticity that is less than 1 are called relatively inelastic in supply. Who bears the burden of a tax has nothing to do with who actually pays the tax at the time of the purchase.

Which of the following is a true statement?

Total revenue is the price of the good times the quantity sold. If demand is price 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. 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

A 25% decrease in the price of breakfast cereal leads to a 20% incrase in the quantity of cereal demanded. As a result:

Total revenue will decrease

How does the relative elasticity of supply and demand determine the tax burden?

When demand is more elastic than supply, the tax burden falls mainly on producers; when supply is more elastic than demand, the tax burden falls mainly on consumers.

How is it possible that elasticity changes along a straight-line demand curve when the slope is constant?

a straight-line demand curve with a constant slope will change elasticity continuously as you move up or down it. It is because the slope is the ratio of changes in the two variables (price and quantity) while the elasticity is the ratio of percentage changes in the two variables.

a relatively larger percentage change in price will lead to a relatively smaller change in quantity demanded—

demand is relatively inelastic on this portion of the demand curve.

The income elasticity of demand is defined as the percentage change in the ______ by the percentage change in ______

demand; income.

The cross-price elasticity of demand is defined as the percentage change in the ________ of good A divided by the percentage change in _______of good B.

demand; price

The price elasticity of demand measures the responsiveness of quantity ______ to a change in price.

demanded

Goods with a supply elasticity that is greater than 1 are called relatively ________ in supply.

elastic

A demand curve or a portion of a demand curve can be relatively ______, _________, or relatively _______.

elastic, unit elastic, inelastic.

When the local symphony recently raised the ticket price for its summer concerts in the park, the symphony was surprised to see that its total revenue had actually decreased. The reason was that the elasticity of demand for tickets was

elastic.

How do we measure consumers' responses to price changes?

elasticity of demand

The more time that people have to adapt to a new price change, the _____ the elasticity of demand. The more time that passes, the more time consumers have to find or develop suitable ________ and to plan and implement changes in their patterns of consumption.

greater, substitutes

A straight-line demand curve would

have a higher elasticity of demand near its top than near its bottom.

Goods that are necessities, such as food,

have no ready substitutes and thus tend to have lower elasticities than do luxury items, such as jewelry. the demand for a particular type of food is more elastic because more and better substitutes are available than for food as an entire category.

Elasticity of demand will help to predict what

how changes in the price will impact total revenue earned by the producer for selling the good

Elasticities and Taxes: Combining Supply and Demand Elasticities

if demand is relatively less elastic than supply the largest portion of the tax is paid by the consumer if demand is relatively more elastic than supply, the largest portion of the tax is paid by the producer. the tax burden falls on the side of the market that is relatively less elastic.

Demand is said to be when the quantity demanded is not very responsive to changes in price.

inelastic

certain goods like medical care, air travel, and gasoline are all relatively price are ________

inelastic in the short run because buyers have fewer substitutes.

If the demand for gasoline is highly inelastic and the supply is highly elastic, and then a tax is imposed on gasoline, it will be paid

largely by the buyers of gasoline.

If the price elasticity of demand is elastic, it means the quantity demanded changes by a relatively ____amount than the price change.

larger

good is broadly defined = ______ narrowly defined=_________-

less elastic more elastic

For many goods, especially nondurable goods, the short-run demand curve is generally ________

less elastic than the long-run demand curve,

When supply is inelastic, a 1 percent change in the price of a good will induce a _______ 1 percent change in the quantity supplied.

less than

The smaller the proportion of income spent on a good, the The smaller the proportion of income spent on a good, the______ its elasticity of demand.

lower

What is price elasticity of demand?

measures the responsiveness of quantity demanded to a change in price. Price elasticity of demand = % change in quantity demanded / % change in price

The elasticity of demand for a Ford automobile would likely be ____ elastic than the demand for automobiles because there are more and better substitutes for a certain type of car than for a car itself.

more

Time is usually critical in supply elasticities because it is _______costly for sellers to bring forth and release products in a shorter period of time.

more

The long-run demand curve for gasoline is likely to be

more elastic than the short-run demand curve for gasoline.

If demand is relatively _________ elastic than supply in the relevant region, the largest portion of a tax is paid by the producer.

more.

If the price elasticity of demand is inelastic, it means the quantity demanded changes by a relatively ______ amount than the price change.

smaller

Is a good wheat harvest always good for all wheat farmers?

so collectively wheat farmers will experience a decline in total revenue despite the good news.

The price elasticity of supply measures the sensitivity of the quantity________ to changes in the price of the good.

supplied

price elasticity of demand depends on three factors:

the availability of close substitutes, the proportion of income spent on the good the amount of time that has elapsed since the price change.

When the price falls on the _______ half of a straight-line demand curve, demand is relatively _____. When the price falls on the lower half of a straight-line demand curve, demand is relatively ________.

upper; elastic; inelastic.

Demand curves for goods tend to become more inelastic

when people have less time to adapt to a given price change

Does it matter whether we move up or down the demand curve when we calculate the price elasticity of demand?

yes