Unit 2B (Micro)

Question 1

Elasticity

Answer 1

A measure of how much we respond to a price change

Question 2

Inelastic

Answer 2

I-> straight up and down

• When a high price change, the quantity demanded barely changes
• EX: cigarettes, insulin
• Things that are small fractions of income like salt

Question 3

Unitary elastic

Answer 3

Middle ground and normal product

Question 4

Elastic

Answer 4

Horizontal curbe

• Put a little tax and lose a lot of people
• EX tax on sugary drinks
• Substitutes, fad products
• Luxury goods/ goods that are a large percentage of income

Question 5

Demand curve

• substitution effect
• income effect

Answer 5

Substitution- When price goes up, substitute something else

• Income: as price goes up things become a greater percentage of income and I cant afford to buy as much of it
• These effects usually work together unless the good is inferior

Question 6

How does elasticity change ALONG the demand curve

Answer 6

Eat
Up
Idiots
Left side elastic
middle section unit elastic
right side inelastic

Question 7

Demand elasticity formula and interpretation

Answer 7

%change in quantity demanded/%change in price
If under 1, inelastic
if over 1, elastic
if exactly 1 then unit elastic

Question 8

INELASTIC price and total revenue relationship

quantity and price effect relationship

Answer 8

Same
if price up, tr up
price effect>quantity effect
So (Q/P)<1
***price effect is the vertical shift in the line and quantity effect is the horizontal effect

Question 9

ELASTIC price and total revenue relationship

quantity and price effect relationship

Answer 9

inverse
if price up, tr down
price effect< quantity effect
(Q/P)>1
***price effect is the vertical shift in the line and quantity effect is the horizontal effect

Question 10

Cross price elasticity formula and meaning

Answer 10

%change in quantity demanded of product A/(% change in PRICE of B)

• If NEGATIVE, compliments
• if POSITIVE, subsitutes

Question 11

Income elasticity formula

Answer 11

(% change in quantity demanded/ %change in income)
If positive, it is a normal good
If negative, it is an inferior good

Question 12

Tax types

Answer 12

• Progressive
• Regressive
• Porportional

Question 13

Progressive tax type

Answer 13

-Like an increasing exponential graph
-The more you make the more percentage of income you pay
EX: income tax

Question 14

Regressive tax type

Answer 14

• More you make the less you may
• Looks like second quandrant of a circle graph
• EX: payroll tax
• Sales tax (the more you make the less percentage of your income sales tax is)

Question 15

Porportional tax type

Answer 15

• Tax rate is fixed and the % income is the same
• NOT sales tax
• Increasing linear graph

Question 16

Who bears the tax?: Demand elastic and supply inelastic

Answer 16

Consumers pay little, producers pay alot

Question 17

Who bears the tax?: Demand inelastic and supply elastic

Answer 17

Consumers pay a lot and producers pay little

Question 18

Who bears the tax?: Both supply and demand are elastic

Answer 18

Both pay basically the same amount

Question 19

Who bears the tax?: Both supply and demand are inelastic

Answer 19

Both pay basically the same

Question 20

Consumer choice theory formula

Answer 20

Marginal utility of candy/ price of candy

marginal utility of chips/ price of chips
divide both sides
if the numbers on either side of the = equal each other, you are at consumer equilibirum
if you get 5 candy and 4 chips, you will opt to get more candy and less chips (but as you do that the marginal utiltiy for chips increases) and you keep going until you find equilibrium

Question 21

An important determinant of the price of elasticity of demand is the

Answer 21

Availability of substitutes

Question 22

A price cieling will cause a larger shortage when demand is ____ and supply is ___

Answer 22

Elastic; inelastic

Question 23

Decreases in input costs and the longer length of time since a price a price change will tend to :
increases/decrease the price elasticity of supply/demand

Answer 23

Increase the price elasticity of

Question 24

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers

Answer 24

Purchase more of the now relatively less expensive good

Question 25

The income effect refers to

Answer 25

A change in the quantity demanded of a good because of an implicit change in the buyers income caused by a change in the price of a good or service

Question 26

``` An important determinant of the price elasticity of demand for a good is the: A. Time period B. Price of related goods c. level of technology \d. quantity of goods supplied e. growth rate of GDP in the economy ```

Answer 26

A. time period

Question 27

An excise tax collected from the producers of a good does what to the supply curve

Answer 27

Shifts it upward

Question 28

Brianna and Jess both pay $1000 ub income taxes each year but Briana earns $20,000 and jess earns $10,000. what is the tax system

Answer 28

Regressive

Question 29

If the government imposes a price floor in the market for grapefrui, total surplus will

Answer 29

Decrease

Question 30

you go to an all you can eat buffet. IF you maximize utility, the marginal utility of the last bite that you eat will be

Answer 30

Equal to zero

Question 31

``` Which of the following would have a vertical supply curve? A> salt v. oil c. insulin d. paintings by van gogh e. gasoline ```

Answer 31

D paintings by van gogh

Question 32

Which situation would most likely cause a decrease in consumer surplus in the toy market? a. a price cieling is imposed on the toy market b. consumer income increases c. there is an unexpected baby boom d. a new assembly line design increases worker productivity e. the cost of shipping increases due to higher oil prices

Answer 32

E

Question 33

If an excise tax is imposed on beer and collected from the ____ the ___ curve will shift ___ by the amount of the tax

Answer 33

Sellers;supply; upward