Chapter 5

Question 1

Elasticity

Answer 1

How responsive consumers and producers are to demand changes

Question 2

inelastic

Answer 2

consumers don’t change demand because of price much

–>demand percent change is less compared to the percent change of price.

Question 3

Price Elasticity equation

Answer 3

D= % change in demand / % change in price

Question 3

Perfectly Inelastic

Answer 3

Elasticity value = 0

Question 3

Relatively Inelastic

Answer 3

Elasticity value < 1

Question 3

Elasticity value = 0

Answer 3

Perfectly Inelastic

Question 4

Elasticity value < 1

Answer 4

Relatively Inelastic

Question 5

Unit Elastic

Answer 5

Elasticity value = 1

Question 6

Elasticity value = 1

Answer 6

Unit Elastic

Question 7

Relatively Elastic

Answer 7

Elasticity value > 1

Question 8

Elasticity value > 1

Answer 8

Relatively Elastic

Question 9

Perfectly Elastic

Answer 9

infinity

Question 10

infinity

Answer 10

Perfectly Elastic

Question 11

What happens to the negative sign when calculating elasticity

Answer 11

dropped.

Question 12

EOIS

Answer 12

Elastic price Opposite to total revenue, Inelastic price the same as total revenue

Question 13

Cross-Price Elasticity of Demand

Answer 13

% change in Quantity demanded of Product X
/
% change in price of product Y

Question 14

Negative CPED

Answer 14

Complementary good

Question 15

Positive CPED

Answer 15

Substitute good

Question 16

Income elasticity of demand

Answer 16

% change in quantity demanded
/
% change in consumer income

Question 17

Negative Income elasticity of demand

Answer 17

Inferior good

Question 18

Positive Income elasticity of demand

Answer 18

normal good

Question 19

Price elasticity of Supply

Answer 19

% change in quantity supplied
/
% change in price

Question 20

difference between the highest price a consumer would pay with the actual price paid

top left side inside the x of the supply demand graph

Answer 20

Consumer surplus

Question 21

Consumer surplus

Answer 21

difference between the highest price a consumer would pay with the actual price paid

money consumers have left from the budget

top left side inside the x of the supply demand graph

Question 22

Producer surplus

Answer 22

The difference between the minimum cost the producer would sell at and the actual cost something was sold at.

Question 23

The difference between the minimum cost the producer would sell at and the actual cost something was sold at.

Answer 23

Producer surplus

Question 24

Price ceiling

Answer 24

maximum legal price that can be charged for something if lower than the equilibrium price, will create a shortage

Question 25

price floor

Answer 25

minimum legal price for something if higher than the equilibrium price, it will create a surplus

Question 25

deadweight loss

Answer 25

loss in the total surplus when a market fails to reach a competetive equilibrium.

Question 26

excise tax

Answer 26

tax on producers. Supply curve moves up. If a $4 tax is added to a $5 product, the price is not $9, as the

Question 27

What determines who is burdened more by the tax?

Answer 27

The curve that is more inelastic (closer to a vertical line) pays more of the fee (demand vs supply graphs)

Question 28

Quota

Answer 28

limit on quantity that can be imported

Question 28

Diminishing marginal utility

Answer 28

As one gets more and more of a good, the satisfaction, or util gained from one unit gets smaller.

Question 29

marginal in economcis

Answer 29

the additional cost or benefit resulting from a small, incremental change—typically producing or consuming one extra unit

Question 30

Total utility

Answer 30

total utility -- pleasure or satisfaction -- gained from the consumption of a thing. Different for different quantities

Question 31

marginal utility

Answer 31

utility -- pleasure or satisfaction -- gained from one extra unit of a thing. Different for different quantities

Question 32

Util

Answer 32

Unit of utility --> basically a satisfaction point

Question 33

utility maximisation rule

Answer 33

For X, Marginal utility / P = Marginal Utility/P for Y Consume more of the one with the higher marginal utility per price until the values are equal.