p.13
Types of Demand: Elastic, Inelastic, Unit Elastic
How does an increase in the price of a luxury good affect consumer sensitivity?
Consumers become more sensitive to the price (elastic).
p.13
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens when the price of a necessity product increases?
Consumers are insensitive to the price (inelastic).
Where is the unit elastic point located on the demand curve?
At the middle of the demand curve (point B).
p.65
Tax Incidence / Tax Burden
What happens when a tax is levied on consumers?
The burden may shift to producers depending on the elasticity of supply and demand.
What should you NOT do when calculating the new equilibrium price after a tax is introduced?
Do not simply add the tax amount to the original equilibrium price.
p.63
Factors Affecting Elasticity of Demand
What should you do if the question does not specify which curve to shift?
Most professors expect you to shift the supply curve.
p.15
Factors Affecting Elasticity of Demand
What is the difference between short run and long run in economic terms?
In the short run, consumers have limited options to adjust to price changes, while in the long run, they can change their behavior or make significant adjustments.
p.14
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens to demand for a narrowly defined product when its price increases?
Demand becomes elastic because consumers can switch to other products.
p.13
Types of Demand: Elastic, Inelastic, Unit Elastic
What are the two types of products mentioned?
Luxury product and necessity product.
p.6
Point Price Elasticity of Demand Calculation
How do you calculate the price elasticity of demand at a specific price?
By using the demand equation to find Q and then applying the elasticity formula.
p.24
Different Elasticities Along the Demand Curve
At what price is demand unit elastic according to the demand equation?
To find the price, set the price elasticity of demand equal to 1.
p.39
Perfectly Elastic and Inelastic Demand
Give an example of perfectly inelastic supply.
Seats in a movie theater.
p.21
Types of Demand: Elastic, Inelastic, Unit Elastic
What does it mean when demand is described as elastic?
It is sensitive because it represents a bigger portion of your income.
p.13
Factors Affecting Elasticity of Demand
How should 'ceteris paribus' affect your answer in a question?
It should have no effect on your answer.
p.30
Income Elasticity of Demand
What is the income elasticity of inferior goods?
The income elasticity of inferior goods is negative.
p.42
Different Elasticities Along the Demand Curve
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
p.58
Different Elasticities Along the Demand Curve
What is the copyright status of the publication?
© Wizedemy Inc. All Rights Reserved.
p.9
Arc Price Elasticity of Demand
What is the average percentage change in quantity between points A and B?
The specific value is not provided in the text.
p.39
Perfectly Elastic and Inelastic Demand
What is perfectly elastic supply?
When the price changes, the quantity supplied changes by an infinite amount.
p.11
Point Price Elasticity of Demand Calculation
How do you calculate the elasticity of demand between two prices?
Using the formula for point price elasticity of demand.
p.30
Income Elasticity of Demand
What happens to the consumption of inferior goods as income increases?
As your income increases, you will buy fewer inferior goods.
p.7
Arc Price Elasticity of Demand
How do you calculate Average Percentage Change?
Average Percentage Change = ((Average New - Old) / Old) * 100
p.58
Different Elasticities Along the Demand Curve
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing, transmitting, or storing the publication in any form.
p.53
Price Elasticity of Supply
What happens to supply in the long run according to the lesson?
Supply is elastic because landlords have time to sell off their apartments.
p.27
Types of Demand: Elastic, Inelastic, Unit Elastic
How does the demand for luxury goods compare to the demand for necessity goods?
The demand for a luxury good will be flatter than the demand for a necessity good.
p.4
Different Elasticities Along the Demand Curve
If the quantity changes from 40 to 50 units, what is the percentage change?
Percentage Change = ((50 - 40) / 40) * 100 = 25%
p.66
Perfectly Elastic and Inelastic Demand
If consumers are willing to buy 20 units of a good at any price, what does this imply about their demand?
It implies that demand is perfectly inelastic at that price.
p.66
Factors Affecting Elasticity of Demand
In the context of tax burden, who bears a bigger portion if consumers are willing to buy 20 units at any price?
Consumers bear more but not all of the tax burden.
p.51
Different Elasticities Along the Demand Curve
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
p.61
Price Elasticity of Supply
What happens to the supply curve when tax is paid by the seller?
Every point on the supply curve shifts up (left) by the amount of the tax.
p.22
Types of Demand: Elastic, Inelastic, Unit Elastic
What characterizes the demand portion from point B to C?
It is the inelastic portion of demand.
p.25
Perfectly Elastic and Inelastic Demand
What does perfectly inelastic demand mean?
When price rises, quantity demanded does not change at all.
p.28
Different Elasticities Along the Demand Curve
What does a steeper demand curve indicate?
It typically represents a good with fewer substitutes.
p.57
Price Elasticity of Demand
What happens when a minimum wage is set above the equilibrium wage?
It can lead to unemployment as the quantity of labor supplied exceeds the quantity demanded.
p.70
Price Elasticity of Supply
What determines the price charged by sellers when a quota is in place?
The price consumers are willing to pay, which is determined by where the output hits the demand curve.
p.50
Price Elasticity of Demand
What is the effect of a binding price ceiling on the rental market?
It creates a shortage of rental units.
p.12
Factors Affecting Elasticity of Demand
Give an example of a product with many substitutes.
Coke, Pepsi, Sprite, Mountain Dew.
p.37
Types of Demand: Elastic, Inelastic, Unit Elastic
What defines unit elastic supply?
Elasticity is equal to 1.
p.20
Different Elasticities Along the Demand Curve
Give an example of inelastic demand.
If the price of shoes increases from $1 to $2, consumers are likely to continue buying them.
p.20
Different Elasticities Along the Demand Curve
What portion of the demand curve is always elastic?
The top half (between points A and B).
p.40
Different Elasticities Along the Demand Curve
Give an example of increasing production at higher quantities.
Doubling production from 1000 shoes to 2000 shoes is difficult and may require additional resources.
p.33
Cross Price Elasticity of Demand
What happens to the demand for gas if the price of cars increases?
The demand for gas will decrease.
p.56
Different Elasticities Along the Demand Curve
What is the copyright status of the publication?
© Wizedemy Inc. All Rights Reserved.
p.14
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens to demand for a broadly defined product when its price increases?
Demand becomes inelastic because there are no substitutes for essential items.
p.39
Perfectly Elastic and Inelastic Demand
What happens to pencil production if the price increases?
The company can increase production very easily.
p.7
Arc Price Elasticity of Demand
What is Arc Price Elasticity of Demand used for?
To calculate the average elasticity between two prices.
p.44
Different Elasticities Along the Demand Curve
How is the present value of an annuity-due calculated?
PV = C × [(1 - (1 + r)^-n) / r] × (1 + r), where C is the cash flow, r is the discount rate, and n is the number of periods.
p.62
Factors Affecting Elasticity of Demand
What happens to the demand curve when tax is paid by consumers?
Every point on the demand curve shifts down (left) by the amount of the tax.
p.35
Cross Price Elasticity of Demand
What is the relationship between lemonade and cola in the context of cross price elasticity?
Lemonade and cola are likely substitutes, meaning a change in the price of cola will affect the demand for lemonade.
p.43
Point Price Elasticity of Demand Calculation
What is the formula to find the point elasticity of supply?
Point elasticity of supply = (% change in quantity supplied) / (% change in price).
p.31
Income Elasticity of Demand
If Yasmine's income rises by 20% and her coffee consumption increases from 75 to 85, what is the % change in quantity demanded?
The % change in quantity demanded is 13.33%.
p.64
Price Elasticity of Supply
What would a $3 per unit tax on consumers be equivalent to?
A $3 per unit tax levied on producers of the good.
p.37
Point Price Elasticity of Demand Calculation
What is the formula for Price Elasticity of Supply?
Price Elasticity of Supply = %Δ P / %Δ Qs.
p.1
Types of Demand: Elastic, Inelastic, Unit Elastic
What does inelastic demand mean?
It means consumers are insensitive to price changes.
p.46
Government Interventions in Markets
How does a price ceiling affect the market graphically?
It appears as a maximum price below the equilibrium, contrary to what one might expect.
p.18
Factors Affecting Elasticity of Demand
How do Fruit Loops compare to food in terms of price elasticity of demand?
Fruit Loops have a lower price elasticity of demand because they are specifically defined.
p.29
Income Elasticity of Demand
What are the two types of normal goods?
Normal and Necessity Goods, and Normal and Luxury Goods.
p.68
Perfectly Elastic and Inelastic Demand
What was the original equilibrium price before the tax?
The original equilibrium price was not specified in the text.
p.13
Factors Affecting Elasticity of Demand
What does 'ceteris paribus' mean?
Everything else held constant.
Why is point B considered the unit elastic point of demand?
Because it is exactly between the elastic and inelastic portions.
p.44
Different Elasticities Along the Demand Curve
What is capital gain yield?
Capital gain yield is the price appreciation of an investment expressed as a percentage of its initial purchase price.
p.31
Income Elasticity of Demand
What is the formula for calculating arc income elasticity of demand?
Arc Income Elasticity = (% Change in Quantity Demanded) / (% Change in Income)
p.15
Types of Demand: Elastic, Inelastic, Unit Elastic
What options do consumers have in the long run if gas prices keep rising?
They can switch to a hybrid car, bicycle, or use more public transportation, indicating elastic demand.
p.37
Price Elasticity of Supply
What is the perspective from which elasticity of supply is analyzed?
From the firm's perspective rather than the consumer.
p.61
Price Elasticity of Supply
How is the new equilibrium quantity determined after tax is imposed?
It is the quantity at the new equilibrium with the tax.
p.54
Price Elasticity of Supply
What is a price floor?
A lower limit on the price that producers can legally charge consumers.
p.16
Factors Affecting Elasticity of Demand
What happens to your sensitivity to price when it represents a large percentage of your income?
You become more sensitive to price changes, indicating elastic demand.
p.5
Point Price Elasticity of Demand Calculation
Is the demand elastic or inelastic at the price of $20?
To be determined based on the calculated elasticity value.
p.68
Perfectly Elastic and Inelastic Demand
What does it mean when consumers pay all of the tax?
It indicates that the demand is perfectly elastic.
p.25
Perfectly Elastic and Inelastic Demand
What does perfectly elastic demand mean?
When price rises, quantity demanded falls by an infinite amount.
p.29
Income Elasticity of Demand
What characterizes Normal and Luxury Goods?
Income elasticity is positive and greater than 1.
p.40
Different Elasticities Along the Demand Curve
Give an example of increasing production at lower quantities.
Doubling production from 1 shoe to 2 shoes is easy using the same resources.
p.65
Tax Incidence / Tax Burden
When will the burden of a tax on trucks be greater on producers?
When supply is inelastic and demand is elastic.
p.66
Factors Affecting Elasticity of Demand
What is the main topic of the practice question?
Tax Incidence / Tax Burden.
p.63
Factors Affecting Elasticity of Demand
What is the effect of a tax on the demand curve?
It can shift down the demand curve by the amount of the tax.
p.44
Different Elasticities Along the Demand Curve
What does the income yield of an investment represent?
The income yield is the annual income generated by an investment expressed as a percentage of its current market value.
p.38
Factors Affecting Elasticity of Demand
What is one factor that affects price elasticity of supply?
Access and availability of substitutes for its resources.
p.70
Price Elasticity of Supply
What is a production quota?
A government-imposed limit on the quantity of a good that a firm can sell.
p.31
Income Elasticity of Demand
What is Yasmine's arc income elasticity of demand for coffee?
Arc Income Elasticity = 13.33% / 20% = 0.6665.
p.18
Factors Affecting Elasticity of Demand
Why does food have a lower price elasticity of demand?
Because it is more broadly defined.
p.70
Price Elasticity of Supply
Where should quotas be set in relation to equilibrium quantity?
Quotas should always be set below the equilibrium quantity.
p.50
Price Elasticity of Demand
What does it mean for a price ceiling to be binding?
It is set below the equilibrium price, causing a shortage.
p.1
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens to quantity demanded when the price rises in inelastic demand?
The quantity demanded will fall by only a little bit.
p.40
Different Elasticities Along the Demand Curve
What is the elasticity of supply on the left side of the supply curve?
More elastic, as it is easier to increase production at lower quantities.
p.19
Different Elasticities Along the Demand Curve and Total Revenue
What happens to Total Revenue when price increases in an elastic demand scenario?
Total Revenue will decrease.
p.57
Price Elasticity of Demand
What does the demand schedule represent in the labor market?
The number of people firms are willing to hire at each wage rate.
p.33
Cross Price Elasticity of Demand
What does cross price elasticity of demand indicate?
It tells us if two products are complements, substitutes, or unrelated.
p.48
Price Elasticity of Demand
What is an example of black market activity mentioned?
Scalpers selling tickets outside a stadium.
p.20
Different Elasticities Along the Demand Curve
What does it mean if demand is elastic?
Consumers are sensitive to price changes.
p.53
Price Elasticity of Supply
What does a housing shortage indicate in the long run?
The housing shortage increases in the long run.
p.56
Different Elasticities Along the Demand Curve
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
p.39
Perfectly Elastic and Inelastic Demand
What is perfectly inelastic supply?
When the price changes, the quantity supplied does not change at all.
p.34
Different Elasticities Along the Demand Curve
What is the copyright notice for the video tutorial?
© Wizedemy Inc. All Rights Reserved.
p.65
Tax Incidence / Tax Burden
What is tax incidence?
The distribution of the tax burden between buyers and sellers.
What is a per unit tax?
A fixed amount of tax paid by either the buyer or seller on every good sold.
p.35
Arc Price Elasticity of Demand
How do you calculate the arc cross price elasticity of demand?
By using the formula: (ΔQd of lemonade / Qd of lemonade average) / (ΔP of cola / P of cola average).
p.23
Different Elasticities Along the Demand Curve
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
p.38
Factors Affecting Elasticity of Demand
How do substitutes for resources affect supply elasticity?
The more substitutes a firm has, the more elastic the supply becomes.
p.15
Types of Demand: Elastic, Inelastic, Unit Elastic
What is an example of inelastic demand?
Paying higher gas prices in the short run.
p.52
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens to the housing shortage in the long run with binding rent control?
The housing shortage gets bigger.
p.29
Income Elasticity of Demand
What does income elasticity of demand indicate?
Whether a good is normal or inferior.
p.46
Government Interventions in Markets
What must a price ceiling be to be effective?
It must be below the equilibrium price.
p.29
Income Elasticity of Demand
What is the formula for calculating income elasticity of demand?
Income Elasticity of Demand = %Δ Q / %Δ I.
p.67
Tax Incidence / Tax Burden with Perfectly Elastic and Inelastic Curves
What does the new equilibrium price represent after a tax is imposed?
It is the price paid by consumers.
p.28
Different Elasticities Along the Demand Curve
Is it possible to compare the slopes of different demand curves?
Yes, it is possible to compare them based on the nature of the goods.
p.19
Different Elasticities Along the Demand Curve and Total Revenue
What happens to Total Revenue when price decreases in an elastic demand scenario?
Total Revenue will increase.
p.10
Arc Price Elasticity of Demand
How do you calculate the arc price elasticity of demand using the midpoint method?
Use the formula: (Change in Quantity / Average Quantity) / (Change in Price / Average Price).
p.10
Arc Price Elasticity of Demand
Is the demand for textbooks elastic or inelastic in this range?
To determine, calculate the arc price elasticity; if > 1, it's elastic; if < 1, it's inelastic.
p.53
Price Elasticity of Supply
What is the significance of landlords having time in the long run?
They can adjust supply by selling off their apartments.
p.69
Price Elasticity of Supply
What does the video tutorial demonstrate regarding taxes?
It shows that producers pay all of the tax.
p.24
Different Elasticities Along the Demand Curve
How can total revenue be maximized using the demand equation?
Total revenue is maximized when the price elasticity of demand is unit elastic.
p.9
Arc Price Elasticity of Demand
What is being calculated between points A and B in the diagram?
The arc price elasticity of demand.
p.8
Different Elasticities Along the Demand Curve
What is the copyright status of the publication from Wizedemy Inc.?
No part may be reproduced or transmitted without prior written permission.
p.4
Different Elasticities Along the Demand Curve
What is the formula to calculate percentage change?
Percentage Change = ((New - Old) / Old) * 100
p.17
Factors Affecting Elasticity of Demand
What are the possible answers for the elasticity of demand for Toyota?
A) less B) greater C) equal or less D) less or greater
p.8
Point Price Elasticity of Demand Calculation
What is being measured between points A and B in the diagram?
The average percentage change in price.
p.7
Arc Price Elasticity of Demand
What is the formula for Arc Price Elasticity of Demand?
Arc Price Elasticity of Demand = (Average %Δ P) / (Average %Δ Q) * (Δ P / Δ Q) * (Q average / P average)
p.44
Different Elasticities Along the Demand Curve
What is the formula for the present value of an ordinary perpetuity?
PV = C / r, where C is the cash flow per period and r is the discount rate.
What is a common exam question regarding per unit tax?
Determining the new equilibrium after tax is introduced.
p.44
Different Elasticities Along the Demand Curve
What is the formula for the present value of a growing perpetuity?
PV = C / (r - g), where C is the cash flow, r is the discount rate, and g is the growth rate.
p.49
Different Elasticities Along the Demand Curve
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
p.35
Cross Price Elasticity of Demand
What is the arc cross price elasticity of demand?
It measures the responsiveness of the quantity demanded of one good to a change in the price of another good.
p.63
Factors Affecting Elasticity of Demand
What is the expected outcome when shifting the demand or supply curve due to a tax?
You will get the same answers for the new price and quantity.
p.66
Factors Affecting Elasticity of Demand
What are the possible answers regarding who bears the tax burden?
A) consumers bear more but not all of the tax burden, B) producers bear more but not all of the tax burden, C) consumers bear all of the tax burden, D) producers bear all of the tax burden.
p.15
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens in the short run if the price of gas rises tomorrow?
People who drive to work will have to pay the higher price, which is considered inelastic behavior.
p.22
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens to total revenue when the price decreases from point B to C?
Total revenue will decrease.
p.50
Price Elasticity of Demand
What is a price ceiling?
A government-imposed limit on how high a price can be charged for a product.
p.17
Factors Affecting Elasticity of Demand
What is the price elasticity of demand for Toyota compared to the elasticity of cars in general?
The price elasticity of demand for Toyota is ____________ than the elasticity of cars in general.
p.26
Different Elasticities Along the Demand Curve
What are some examples of goods mentioned?
Lettuce, wheat, gas at the gas station.
p.65
Tax Incidence / Tax Burden
What is the effect of elastic supply and inelastic demand on tax burden?
Producers bear a greater burden of the tax.
p.62
Factors Affecting Elasticity of Demand
What does the new equilibrium price represent after tax is imposed?
The amount received by sellers (producers).
p.62
Factors Affecting Elasticity of Demand
How is the new equilibrium quantity determined after tax is paid?
It is the quantity at which the new demand curve intersects the supply curve.
p.62
Factors Affecting Elasticity of Demand
How do you find the price consumers pay after tax?
Plug the new quantity into the original demand curve.
p.22
Types of Demand: Elastic, Inelastic, Unit Elastic
At which point is total revenue at its maximum?
At point B (unit elastic).
p.18
Factors Affecting Elasticity of Demand
Why does food have a higher price elasticity of demand?
Because it is considered a necessity.
p.19
Different Elasticities Along the Demand Curve and Total Revenue
What happens to Total Revenue when price decreases in an inelastic demand scenario?
Total Revenue will decrease.
p.16
Types of Demand: Elastic, Inelastic, Unit Elastic
What is an example of elastic demand related to price changes?
If the price of a car doubles, it represents a large percentage of income, making you more sensitive to the price.
p.59
Price Elasticity of Demand
How does supply elasticity affect the impact of a binding minimum wage?
If supply is inelastic, the quantity supplied does not change much, potentially increasing total earnings.
p.29
Income Elasticity of Demand
What characterizes Normal and Necessity Goods?
Income elasticity is positive and less than 1.
p.25
Perfectly Elastic and Inelastic Demand
How does the perfectly inelastic demand curve appear?
It looks like the letter 'I' for Inelastic.
p.29
Income Elasticity of Demand
What happens to spending on necessity goods if income doubles?
Spending increases, but not double.
p.33
Cross Price Elasticity of Demand
What happens to the demand for Coke if the price of Pepsi increases?
The demand for Coke will increase.
p.43
Price Elasticity of Supply
What happens to the quantity supplied of ink cartridges when the price increases from $32 to $36?
The quantity supplied increases from 10 to 13 cartridges.
p.49
Different Elasticities Along the Demand Curve
What is the copyright status of the publication?
© Wizedemy Inc. All Rights Reserved.
p.63
Factors Affecting Elasticity of Demand
What is an alternative way to show the effect of a tax?
Shift up the supply curve by the amount of the tax.
p.22
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens to total revenue when the price decreases from point A to B?
Total revenue will increase.
p.36
Cross Price Elasticity of Demand
What happens to the quantity of plums purchased when the price of peaches rises?
The quantity of plums purchased increases from 4950 to 5050 kilos per week.
p.62
Factors Affecting Elasticity of Demand
What is the amount of tax?
The difference between the consumer price and producer price at the new equilibrium quantity.
p.67
Tax Incidence / Tax Burden with Perfectly Elastic and Inelastic Curves
What happens to consumers' tax burden if demand is perfectly inelastic?
Consumers will pay the entire tax.
What is the change in price and quantity supplied from point B to C?
The price increases from $2 to $3 (50% increase) and the quantity supplied increases from 4 units to 6 units (50% increase).
p.61
Price Elasticity of Supply
How do you find the price producers receive after tax?
Plug the new quantity into the original supply curve.
p.19
Different Elasticities Along the Demand Curve and Total Revenue
What happens to Total Revenue when price increases in an inelastic demand scenario?
Total Revenue will increase.
p.25
Perfectly Elastic and Inelastic Demand
Give an example of perfectly inelastic demand.
Medicine a patient needs to live, such as insulin for a diabetic.
p.70
Price Elasticity of Supply
What price do sellers charge if consumers are willing to pay $12?
$12, as that is where the output hits the demand curve.
p.1
Types of Demand: Elastic, Inelastic, Unit Elastic
What does elastic demand mean?
It means consumers are sensitive to price changes.
p.2
Point Price Elasticity of Demand Calculation
What is the formula for Point Price Elasticity of Demand?
Point Price Elasticity of Demand = (ΔQ / Q) / (ΔP / P) = %ΔQ / %ΔP
p.40
Different Elasticities Along the Demand Curve
Why is it harder to increase production at higher quantities?
Firms may need more machines and workers, which can take time.
p.23
Different Elasticities Along the Demand Curve
What is the duration of the video tutorial for this lesson?
12 minutes and 16 seconds.
p.66
Price Elasticity of Supply
What does an upward sloping supply line indicate?
It indicates that as price increases, the quantity supplied also increases.
p.23
Different Elasticities Along the Demand Curve
What is the copyright status of the publication?
© Wizedemy Inc. All Rights Reserved.
p.46
Government Interventions in Markets
What is a common example of a price ceiling?
Rent control, where the government prevents landlords from charging above a certain price for rent.
p.5
Point Price Elasticity of Demand Calculation
What is the point price elasticity of demand at a price of $20?
To be calculated using the formula: (ΔQ/ΔP) * (P/Q).
p.19
Different Elasticities Along the Demand Curve and Total Revenue
What is the formula for calculating Total Revenue?
Expenditure (Total Revenue) = P × Q.
p.37
Price Elasticity of Supply
What is the nature of elasticity of supply?
Elasticity of supply is always positive.
p.37
Types of Demand: Elastic, Inelastic, Unit Elastic
What defines inelastic supply?
Elasticity is between 0 and 1.
p.50
Price Elasticity of Demand
What is the relationship between quantity demanded and quantity supplied at a price ceiling?
Quantity demanded exceeds quantity supplied, leading to a shortage.
p.28
Different Elasticities Along the Demand Curve
How does the time frame affect the slope of demand curves?
The steeper one may apply for the short run, while the flatter one applies for the long run.
p.33
Cross Price Elasticity of Demand
What is the formula for cross price elasticity of demand?
Cross Price Elasticity of Demand = %Δ P_y / %Δ Q_x.
p.29
Income Elasticity of Demand
What happens to spending on luxury goods if income doubles?
Spending increases by more than double.
p.22
Types of Demand: Elastic, Inelastic, Unit Elastic
What characterizes the demand portion from point A to B?
It is the elastic portion of demand.
p.64
Price Elasticity of Supply
What is the effect of a $3 per unit tax on consumers of a good?
It has the same effect as a $3 per unit tax levied on producers of the good.
p.18
Factors Affecting Elasticity of Demand
Why would Fruit Loops have a lower price elasticity of demand compared to food?
Because Fruit Loops are food, but not all food is Fruit Loops.
p.16
Factors Affecting Elasticity of Demand
What does a small percentage of your income indicate about price sensitivity?
You are likely to be inelastic and continue purchasing the item.
p.48
Price Elasticity of Demand
What is a price ceiling?
A government-imposed limit on how high a price can be charged for a product.
p.18
Factors Affecting Elasticity of Demand
Do Fruit Loops have the same price elasticity of demand as food?
No, because Fruit Loops are specifically defined.
p.48
Price Elasticity of Demand
What happens when a price ceiling is set below the equilibrium rent?
It creates a shortage in the market.
p.28
Different Elasticities Along the Demand Curve
What could explain the difference in slopes between two demand curves?
The flatter one is for a good with no close substitutes.
p.29
Income Elasticity of Demand
What is the income elasticity of normal goods?
Positive relationship; as income increases, consumption of normal goods increases.
p.57
Price Elasticity of Demand
What does the supply schedule represent in the labor market?
The number of people willing to work at each wage rate.
p.54
Price Elasticity of Supply
What does a binding price floor mean?
It must be set above the equilibrium price to be effective.
p.19
Different Elasticities Along the Demand Curve and Total Revenue
What happens to Total Revenue when price increases in a unit elastic demand scenario?
Total Revenue will remain unchanged.
What happens to the price and quantity supplied from point A to B in the example?
The price doubles from $1 to $2 and the quantity supplied doubles from 2 units to 4 units.
p.61
Price Elasticity of Supply
What does the new equilibrium price represent when tax is paid by the seller?
The amount paid by consumers.
p.38
Factors Affecting Elasticity of Demand
What happens to supply elasticity in the short run for a farmer growing apples?
The supply is inelastic because production cannot be significantly increased in a short time.
p.67
Tax Incidence / Tax Burden with Perfectly Elastic and Inelastic Curves
What happens to producers' tax burden if demand is perfectly elastic?
Producers (sellers) will pay the entire tax.
p.38
Factors Affecting Elasticity of Demand
What happens to supply elasticity in the long run for a farmer growing apples?
The supply becomes elastic because the farmer can increase production by planting more trees.
p.64
Price Elasticity of Supply
How does a $3 per unit tax affect the price of the good?
It raises the good’s price by $3 per unit.
p.61
Price Elasticity of Supply
What is the amount of tax?
The difference between the consumer price and producer price at the new equilibrium quantity.
p.54
Price Elasticity of Supply
Why is a price floor set above equilibrium?
To protect the producers.
p.37
Types of Demand: Elastic, Inelastic, Unit Elastic
What defines elastic supply?
Elasticity is greater than 1.
p.20
Different Elasticities Along the Demand Curve
What does it mean if demand is inelastic?
Consumers are insensitive to price changes.
p.59
Price Elasticity of Demand
What is the effect of a binding minimum wage when supply is elastic?
Total earnings may not increase significantly as the quantity supplied can adjust easily.
p.55
Price Elasticity of Supply
What does the demand represent in the labor market?
The company that wants to hire workers.
p.52
Types of Demand: Elastic, Inelastic, Unit Elastic
What is the effect of a binding rent control (price ceiling) on landlords in the short run?
Landlords will collect less rent and will not be happy.
What is the Price Elasticity of Supply from point A to B?
1, calculated as 100% increase in price and 100% increase in quantity supplied.
p.70
Price Elasticity of Supply
What is an example of a production quota?
A quota on the number of fishing licenses allowed to protect fish populations.
p.64
Price Elasticity of Supply
What is NOT an effect of a $3 per unit tax on consumers?
A $3 per unit subsidy paid to producers of the good.
p.59
Price Elasticity of Demand
What is a binding minimum wage?
A legally established minimum wage that is above the equilibrium wage.
p.67
Tax Incidence / Tax Burden with Perfectly Elastic and Inelastic Curves
What occurs to the supply curve when a tax is imposed?
The supply shifts left (upward) from S to S1.
p.16
Types of Demand: Elastic, Inelastic, Unit Elastic
What is an example of inelastic demand related to price changes?
If the price of newspapers doubles from $0.50 to $1, it still represents a small percentage of income.
p.64
Price Elasticity of Supply
What is the difference between a price floor and a price ceiling in relation to a tax?
A price floor raises the price, while a price ceiling limits the price.
p.12
Factors Affecting Elasticity of Demand
Give an example of a product with few substitutes.
Certain types of medicine.
p.40
Different Elasticities Along the Demand Curve
What happens to supply elasticity on the right side of the supply curve?
It becomes less elastic, as increasing production at higher quantities is more difficult.
p.68
Perfectly Elastic and Inelastic Demand
What is the significance of the new equilibrium price after a tax?
The new equilibrium price is still the price paid by consumers.
p.46
Government Interventions in Markets
What is a price ceiling?
A maximum price that producers can legally charge consumers, set by the government.
p.52
Factors Affecting Elasticity of Demand
How is the supply of housing characterized in the short run under rent control?
The supply is inelastic because landlords don't have time to sell off their apartments.
p.12
Factors Affecting Elasticity of Demand
What is one of the main factors that affect the elasticity of demand?
The number of substitutes available.
p.15
Types of Demand: Elastic, Inelastic, Unit Elastic
What is an example of elastic demand?
Switching to alternative transportation methods in the long run as gas prices rise.
p.12
Factors Affecting Elasticity of Demand
How does having many substitutes affect price sensitivity?
Consumers become more sensitive to price changes (elastic demand).
What is the Price Elasticity of Supply from point B to C?
1, calculated as 50% increase in price and 50% increase in quantity supplied.
p.12
Factors Affecting Elasticity of Demand
What happens to demand elasticity when there are few substitutes?
Consumers become less sensitive to price changes (inelastic demand).
p.20
Different Elasticities Along the Demand Curve
What portion of the demand curve is always inelastic?
The bottom half (between points B and C).
p.40
Different Elasticities Along the Demand Curve
Why is supply more elastic at lower quantities?
Because it is easier for firms to increase production with minimal resources.
p.55
Price Elasticity of Supply
What does the supply represent in the labor market?
The workers willing to work at that job.
p.1
Types of Demand: Elastic, Inelastic, Unit Elastic
What happens to quantity demanded when the price rises in elastic demand?
The quantity demanded will fall by a lot.
p.19
Different Elasticities Along the Demand Curve and Total Revenue
What happens to Total Revenue when price decreases in a unit elastic demand scenario?
Total Revenue will remain unchanged.
p.55
Inefficiencies of Price Floors
What illegal activity can arise due to price floors?
Black market activity where employers pay workers under the table.
p.57
Price Elasticity of Demand
What is a price floor?
A minimum price set by the government, such as a minimum wage.
p.68
Perfectly Elastic and Inelastic Demand
What happens to the supply curve when a tax is imposed?
The supply shifts left (upward) from S to S1.
p.52
Types of Demand: Elastic, Inelastic, Unit Elastic
What is the implication of a price ceiling on the rental market?
It leads to a shortage of available housing units.
p.59
Price Elasticity of Demand
What happens to total earnings when demand is elastic and a binding minimum wage is applied?
Total earnings may decrease because the quantity demanded will fall significantly.
p.68
Perfectly Elastic and Inelastic Demand
How do you find the price producers receive after a tax?
By taking the new quantity and plugging it into the original supply curve.
p.48
Price Elasticity of Demand
What is one consequence of price ceilings?
They can lead to black market activity.
p.20
Different Elasticities Along the Demand Curve
Give an example of elastic demand.
If the price of shoes increases from $200 to $400, consumers are likely to reduce their purchases significantly.
