chapter 5-1

If demand is constant unitary elastic, then total revenue

does not change

(F) If a good has zero substitutes and is considered to be an absolute necessity, we can assume that when there is a change in its price, the quantity demanded will be perfectly elastic.

false

(TF) The slope of either the supply or demand curve defines its elasticity

false

(TF) both demand and supply are generally more elastic in the long run than in the short run

true

(TF) when the price of elasticity of demand is less than the price elasticity of supply, then consumers will carry a greater burden of the tax compared to suppliers

true

(TF)Addictive substances, for which demand is inelastic, are products for which producers can pass higher costs on to consumers.

true

(TF)If a tax does not change the product's price that consumers pay, then the tax burden falls entirely on producers.

true

(TF)If the price elasticity of demand at the current price is 0.7 while the price elasticity of supply is 1.5 and the price of a major input to production falls, then consumers will reap more of the benefit than producers.

true

(TF)When the price elasticity of demand is less than the price elasticity of supply, then consumers will carry a greater tax burden when compared to producers.

true

Supply or demand is unitary elastic when elasticity is equal to 1, or the percentage change in quantity is equal to the percentage change in price.

unitary elastic

marginal utility

satisfaction or usefulness obtained from acquiring one more unit of a product

formula for elasticity

% change in quantity / % change in price

income elasticity of demand

% change in quantity demanded / % change in income

Elasticity of savings

% change in quantity financial savings / % change in interest rate

wage elasticity labor supply

% change in quantity of labor supplied / % change in wage

The formula for price elasticity of supply is

% change in quantity supplied / % change in price

when studying the price elasticity of demand of a good or service, it is important to take into account which of the following determinants

1. availability of close substitutes 2. the extent to which the good or service is a necessity 3. the extent to which the good or service is a luxury

Consider an industry where new technology which significantly lowers the cost of production has just been introduced. Which of the following are consequences of this change in a market with a relatively inelastic demand compared to supply?

1. the fall in production costs will increase supply 2. the lower costs of production will give a greater benefit to consumers than producers

Measures the responsiveness of one variable to changes in another variable

Elasticity

constant unitary elasticity

Elasticity that are equal to one everywhere along the demand or supply curve is defined as unitary elastic

Supply or demand is inelastic when elasticity is less than 1, or the percentage change in quantity is less than the percentage change in price.

Inelastic

what is the equation for determining the price elasticity of a demand curve

Price of elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price

Supply is elastic when elasticity is greater than 1, or percentage change in quantity is greater than percentage change in price.

Supply is elastic when elasticity is greater than 1, or percentage change in quantity is greater than percentage change in price.

(TF) If the elasticity of demand is equal to 1 between points A and B, and the price of a good is increased from point B to point A, total revenue will remain unchanged.

True

(TF)goods with a limited supply of inputs have nearly zero elastic supply curves

True

If the price elasticity of demand at the current price is 0.7 while the price elasticity of supply is 1.5 and the price of a major input to production falls, then consumers will reap more of the benefit than producers.

True

when measuring income elasticity, what does a positive result tell us?

a good is normal

Consider a market where demand is relatively more inelastic than supply. If the price of a major input increases, how will this increase in input costs be split between producers and consumers?

consumers will face a greater portion of the burden of the cost increase than consumers

Consider a market where demand is relatively more inelastic than supply. If the price of a major input increases, how will this increase in input costs be split between producers and consumers?

consumers will face a greater portion of the burden of the cost of increase

Supply or demand is elastic when elasticity is greater than 1, or the percentage change in quantity is greater than the percentage change in price.

elastic

In the short run, it is difficult for a person to make changes to their energy consumption habits. In the long run, they can purchase a car that is more efficient, live closer to work, and buy energy efficient appliances. Because of this, you can say that

elasticity is lower in the short run than the long run

Constant unitary elasticity

in either a supply or demand curve, occurs when a price change of one percent results in a quantity change of one percent. That is, when percentage change in quantity is equal to percentage change in price.

The percent change in the quantity demanded of a good in relation to the percent change in the price of that good is called

price elasticity

The percent change in the quantity demanded of a good in relation to the percent change in the price of that good is called its

price elasticity of demand

The responsiveness of quantity supplied of a good in relation to a change in its price is called

price elasticity of supply

tax incidence

the division of the burden of a tax between buyers and sellers

when is supply inelastic

when the elasticity is less than 1 or %change in Q is less than % change in price