Chapter 4: Supply and Demand: Elasticity and Applications

Question 1

Price elasticity of demand:

Answer 1

It measures how much the quantity demanded of a good changes when its price changes. The precise definition of price elasticity is the percentage change in quantity demanded divided by the percentage change in price.

Question 2

High price elasticity:

Answer 2

Elastic demand (quantity demanded responds 					greatly to price changes)
Examples include pizza, bread, books and pencils.

Question 3

Give some examples of factors that influence a product´s or service´s price elasticity:

Answer 3

Elasticity tend to be higher when the goods are luxuries, when substitutes are available, and when consumers have more time to adjust their behaviour.

Question 4

Total revenue:

Answer 4

Price X Quantity

Question 5

The price elasticity of supply… :

Answer 5

…is the percentage change in quantity supplied divided by the percentage change in price.

Question 6

What do subsidies encourage?

Answer 6

Subsidies encourage production

Question 7

When a tax is shifted forward to consumers?

Answer 7

A tax is shifted forward to consumers if the demand is inelastic relative to supply.

Question 8

When is a tax shifted backward to producers?

Answer 8

A tax is shifted backward to producers if supply is inelatic relative to demand.