CH 3

Question 1

Elasticity

Answer 1

the percentage change in one variable in
response to a given percentage change in another
variable.

Question 2

Price elasticity of demand (ε)

Answer 2

the percentage
change in the quantity demanded in response to a given
percentage change in the price, at a particular point on the
demand curve

Question 3

Formula for price elasticity of demand

Answer 3

(change in Q/change in p)*(p/Q)

Question 4

Demand is elastic when

Answer 4

ε<-1

Question 5

Demand is unitary when

Answer 5

ε=-1

Question 6

Demand is inelastic when

Answer 6

0>ε>-1

Question 7

Demand is perfectly inelastic when

Answer 7

ε=0

Question 8

Demand is perfectly elastic when

Answer 8

ε=infinite

Question 9

What does it mean to be perfectly elastic

Answer 9

People are willing to buy as much as firms sell at any price less than or equal to p. If prices increases above p demand falls to 0

Question 10

What does it mean to be perfectly inelastic

Answer 10

If the price goes up, the quantity demanded is unchanged

Question 11

What type of goods have a vertical demand curve

Answer 11

Essential goods: goods that people feel they must have and will pay anything to get

Question 12

With elastic demand, a higher price does what to revenue?

Answer 12

reduces revenue

Question 13

With inelastic demand a high price does what to revenue?

Answer 13

increases revenue

Question 14

When cross-price elasticity is negative the goods are what

Answer 14

complements

Question 15

When cross-price elasticity is positive the goods are what?

Answer 15

substitutes

Question 16

Ad valorem tax

Answer 16

for every dollar the consumer spends, the
government keeps a fraction a,
which is the ad valorem tax rate

Question 17

Specific/Unit tax

Answer 17

where a specified dollar amount, t, is
collected per unit of output.