What price is used to calculate the price elasticity of demand?
Click to see answer
$40.
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What price is used to calculate the price elasticity of demand?
$40.
How does an increase in the price of a luxury good affect consumer sensitivity?
Consumers become more sensitive to the price (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).
What is the absolute value of Price Elasticity of Demand for inelastic demand?
Less than 1.
What is the absolute value of Price Elasticity of Demand for elastic demand?
Greater than 1.
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.
What should you do if the question does not specify which curve to shift?
Most professors expect you to shift the supply curve.
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.
What is the duration of the video tutorial for this lesson?
05:18.
What happens to demand for a narrowly defined product when its price increases?
Demand becomes elastic because consumers can switch to other products.
What are the two types of products mentioned?
Luxury product and necessity product.
Where can the video tutorial for this lesson be found?
On wizeprep.com.
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.
What is the duration of the video tutorial for this lesson?
03:19.
What is the price range for calculating the elasticity of demand?
50.
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.
Give an example of perfectly inelastic supply.
Seats in a movie theater.
What does it mean when demand is described as elastic?
It is sensitive because it represents a bigger portion of your income.
How should 'ceteris paribus' affect your answer in a question?
It should have no effect on your answer.
What is the income elasticity of inferior goods?
The income elasticity of inferior goods is negative.
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
What is the copyright status of the publication?
© Wizedemy Inc. All Rights Reserved.
What is the average percentage change in quantity between points A and B?
The specific value is not provided in the text.
What is perfectly elastic supply?
When the price changes, the quantity supplied changes by an infinite amount.
Where can the solution be found?
Available online.
How do you calculate the elasticity of demand between two prices?
Using the formula for point price elasticity of demand.
What happens to the consumption of inferior goods as income increases?
As your income increases, you will buy fewer inferior goods.
How do you calculate Average Percentage Change?
Average Percentage Change = ((Average New - Old) / Old) * 100
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing, transmitting, or storing the publication in any form.
Where can the video tutorial for this lesson be found?
On wizeprep.com.
What happens to supply in the long run according to the lesson?
Supply is elastic because landlords have time to sell off their apartments.
What is the demand equation given in the lesson?
P = 70 – 2Q.
What is the demand equation given in the lesson?
P = 70 - 2Q.
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.
If the quantity changes from 40 to 50 units, what is the percentage change?
Percentage Change = ((50 - 40) / 40) * 100 = 25%
What is the duration of the video tutorial for the lesson?
01:43 minutes.
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.
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.
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
What is the elasticity of supply when the supply curve starts at the origin?
1 (unit elastic).
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.
What characterizes the demand portion from point B to C?
It is the inelastic portion of demand.
What is the rent ceiling imposed by the government in the example?
$900 per unit.
What does perfectly inelastic demand mean?
When price rises, quantity demanded does not change at all.
What does a steeper demand curve indicate?
It typically represents a good with fewer substitutes.
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.
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.
What is the effect of a binding price ceiling on the rental market?
It creates a shortage of rental units.
Give an example of a product with many substitutes.
Coke, Pepsi, Sprite, Mountain Dew.
What is the minimum wage set by the government in the example?
$15 per hour.
What defines unit elastic supply?
Elasticity is equal to 1.
Give an example of inelastic demand.
If the price of shoes increases from 2, consumers are likely to continue buying them.
What portion of the demand curve is always elastic?
The top half (between points A and B).
Give an example of increasing production at higher quantities.
Doubling production from 1000 shoes to 2000 shoes is difficult and may require additional resources.
What happens to the demand for gas if the price of cars increases?
The demand for gas will decrease.
What is the copyright status of the publication?
© Wizedemy Inc. All Rights Reserved.
What is an example of a narrowly defined product?
Pizza.
What happens to demand for a broadly defined product when its price increases?
Demand becomes inelastic because there are no substitutes for essential items.
What happens to pencil production if the price increases?
The company can increase production very easily.
What is the website mentioned for the video tutorial?
wizeprep.com
What is Arc Price Elasticity of Demand used for?
To calculate the average elasticity between two prices.
Where can the video tutorial for this lesson be found?
On wizeprep.com.
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.
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.
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.
What is the formula to find the point elasticity of supply?
Point elasticity of supply = (% change in quantity supplied) / (% change in price).
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%.
What would a $3 per unit tax on consumers be equivalent to?
A $3 per unit tax levied on producers of the good.
What is the formula for Price Elasticity of Supply?
Price Elasticity of Supply = %Δ P / %Δ Qs.
What is the arc cross-price elasticity of demand calculated in this scenario?
-1.5, -0.8, 0.8, or 1.5.
What is the elasticity value for perfectly inelastic demand?
What does inelastic demand mean?
It means consumers are insensitive to price changes.
When will a binding minimum wage increase the total dollar earnings of workers?
If demand is inelastic.
How does a price ceiling affect the market graphically?
It appears as a maximum price below the equilibrium, contrary to what one might expect.
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.
What are the two types of normal goods?
Normal and Necessity Goods, and Normal and Luxury Goods.
What was the original equilibrium price before the tax?
The original equilibrium price was not specified in the text.
What is the absolute value of Price Elasticity of Demand (Ed) for products with inelastic demand?
Less than 1.
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.
What type of demand curve is associated with luxury goods?
Flatter demand curve.
What is the absolute value of Price Elasticity of Demand for unit elastic demand?
Equal to 1.
What is the website associated with the video tutorial?
wizeprep.com.
What is capital gain yield?
Capital gain yield is the price appreciation of an investment expressed as a percentage of its initial purchase price.
What is the formula for calculating arc income elasticity of demand?
Arc Income Elasticity = (% Change in Quantity Demanded) / (% Change in Income)
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.
What is the perspective from which elasticity of supply is analyzed?
From the firm's perspective rather than the consumer.
How is the new equilibrium quantity determined after tax is imposed?
It is the quantity at the new equilibrium with the tax.
What is a price floor?
A lower limit on the price that producers can legally charge consumers.
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.
Is the demand elastic or inelastic at the price of $20?
To be determined based on the calculated elasticity value.
What is the minimum wage mentioned in the example?
$13 an hour.
What does it mean when consumers pay all of the tax?
It indicates that the demand is perfectly elastic.
What does perfectly elastic demand mean?
When price rises, quantity demanded falls by an infinite amount.
What is the final quantity demanded of textbooks?
90 units.
What characterizes Normal and Luxury Goods?
Income elasticity is positive and greater than 1.
Give an example of increasing production at lower quantities.
Doubling production from 1 shoe to 2 shoes is easy using the same resources.
What is the cross price elasticity of demand for complements?
It is negative (<0).
What is the income elasticity of demand for gourmet meals compared to junk-food restaurant meals?
Higher than.
When will the burden of a tax on trucks be greater on producers?
When supply is inelastic and demand is elastic.
What is the main topic of the practice question?
Tax Incidence / Tax Burden.
What is the effect of a tax on the demand curve?
It can shift down the demand curve by the amount of the tax.
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.
What is one factor that affects price elasticity of supply?
Access and availability of substitutes for its resources.
What is a production quota?
A government-imposed limit on the quantity of a good that a firm can sell.
What is Yasmine's arc income elasticity of demand for coffee?
Arc Income Elasticity = 13.33% / 20% = 0.6665.
Why does food have a lower price elasticity of demand?
Because it is more broadly defined.
Where should quotas be set in relation to equilibrium quantity?
Quotas should always be set below the equilibrium quantity.
What does it mean for a price ceiling to be binding?
It is set below the equilibrium price, causing a shortage.
What happens to quantity demanded when the price rises in inelastic demand?
The quantity demanded will fall by only a little bit.
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.
What happens to Total Revenue when price increases in an elastic demand scenario?
Total Revenue will decrease.
What does the demand schedule represent in the labor market?
The number of people firms are willing to hire at each wage rate.
What does cross price elasticity of demand indicate?
It tells us if two products are complements, substitutes, or unrelated.
What is an example of black market activity mentioned?
Scalpers selling tickets outside a stadium.
What does it mean if demand is elastic?
Consumers are sensitive to price changes.
What is the absolute value of Price Elasticity of Demand (Ed) for products with unit elastic demand?
Equal to 1.
What does a housing shortage indicate in the long run?
The housing shortage increases in the long run.
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
What is perfectly inelastic supply?
When the price changes, the quantity supplied does not change at all.
What is the copyright notice for the video tutorial?
© Wizedemy Inc. All Rights Reserved.
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.
What type of relationship exists between income and the purchase of inferior goods?
A negative relationship.
What is the new price of ink cartridges in the example?
$36.
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).
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
How do substitutes for resources affect supply elasticity?
The more substitutes a firm has, the more elastic the supply becomes.
What is an example of inelastic demand?
Paying higher gas prices in the short run.
What happens to the housing shortage in the long run with binding rent control?
The housing shortage gets bigger.
What does income elasticity of demand indicate?
Whether a good is normal or inferior.
What must a price ceiling be to be effective?
It must be below the equilibrium price.
What is the formula for calculating income elasticity of demand?
Income Elasticity of Demand = %Δ Q / %Δ I.
What does the new equilibrium price represent after a tax is imposed?
It is the price paid by consumers.
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.
If bananas are selling for $3 per kilogram, what would a price floor be set at to benefit farmers?
$4 per kilogram.
What happens to Total Revenue when price decreases in an elastic demand scenario?
Total Revenue will increase.
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).
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.
Give an example of substitute products.
Coke and Pepsi.
What is the significance of landlords having time in the long run?
They can adjust supply by selling off their apartments.
What is the demand equation provided in the example?
P = 70 – 2Q.
What does the video tutorial demonstrate regarding taxes?
It shows that producers pay all of the tax.
How can total revenue be maximized using the demand equation?
Total revenue is maximized when the price elasticity of demand is unit elastic.
What is being calculated between points A and B in the diagram?
The arc price elasticity of demand.
What is an example of a broadly defined product?
Food in general.
What is the website where the video tutorial can be found?
wizeprep.com.
Give an example of perfectly elastic supply.
Pencils.
What is the copyright status of the publication from Wizedemy Inc.?
No part may be reproduced or transmitted without prior written permission.
What is the duration of the video tutorial for the lesson?
09:20.
What is the formula to calculate percentage change?
Percentage Change = ((New - Old) / Old) * 100
What is the duration of the video tutorial for this lesson?
05:27.
What are the possible answers for the elasticity of demand for Toyota?
A) less B) greater C) equal or less D) less or greater
What is being measured between points A and B in the diagram?
The average percentage change in price.
What is the duration of the video tutorial?
04:23
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)
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.
What type of demand curve is associated with necessity goods?
Steeper demand curve.
What is the initial price of ink cartridges in the example?
$32.
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.
What is prohibited without prior written permission from Wizedemy Inc.?
Reproducing or transmitting any part of the publication.
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.
Who holds the copyright for the publication?
Wizedemy Inc.
How many cartridges are supplied at the initial price of $32?
10 cartridges.
What is the initial price of textbooks in the example?
$20.
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.
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.
What is the new price of textbooks after the increase?
$30.
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.
What happens to total revenue when the price decreases from point B to C?
Total revenue will decrease.
What is a price ceiling?
A government-imposed limit on how high a price can be charged for a product.
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.
What is the duration of the video tutorial for the lesson?
02:42 minutes.
Where can the video tutorial for this lesson be found?
On wizeprep.com.
What are some examples of goods mentioned?
Lettuce, wheat, gas at the gas station.
What is the effect of elastic supply and inelastic demand on tax burden?
Producers bear a greater burden of the tax.
What does the new equilibrium price represent after tax is imposed?
The amount received by sellers (producers).
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.
How do you find the price consumers pay after tax?
Plug the new quantity into the original demand curve.
How many units were demanded before the price increase?
100 units.
How many units were demanded after the price increase?
90 units.
At which point is total revenue at its maximum?
At point B (unit elastic).
Why are price ceilings set below the equilibrium price?
To protect consumers.
What is the initial price of textbooks in the example?
$20.
What is a common example of a price floor?
The minimum wage law.
Why does food have a higher price elasticity of demand?
Because it is considered a necessity.
What happens to Total Revenue when price decreases in an inelastic demand scenario?
Total Revenue will decrease.
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.
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.
What characterizes Normal and Necessity Goods?
Income elasticity is positive and less than 1.
How does the perfectly inelastic demand curve appear?
It looks like the letter 'I' for Inelastic.
What happens to spending on necessity goods if income doubles?
Spending increases, but not double.
What happens to the demand for Coke if the price of Pepsi increases?
The demand for Coke will increase.
What is the website where the video tutorial can be found?
wizeprep.com.
What happens to the quantity supplied of ink cartridges when the price increases from 36?
The quantity supplied increases from 10 to 13 cartridges.
What is the copyright status of the publication?
© Wizedemy Inc. All Rights Reserved.
What is an alternative way to show the effect of a tax?
Shift up the supply curve by the amount of the tax.
What happens to total revenue when the price decreases from point A to B?
Total revenue will increase.
How many cartridges are supplied at the new price of $36?
13 cartridges.
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.
What is the amount of tax?
The difference between the consumer price and producer price at the new equilibrium quantity.
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 3 (50% increase) and the quantity supplied increases from 4 units to 6 units (50% increase).
Based on the arc income elasticity of 0.6665, what type of good is coffee?
Coffee is a normal good.
How do you find the price producers receive after tax?
Plug the new quantity into the original supply curve.
What happens to Total Revenue when price increases in an inelastic demand scenario?
Total Revenue will increase.
Give an example of perfectly inelastic demand.
Medicine a patient needs to live, such as insulin for a diabetic.
What price do sellers charge if consumers are willing to pay $12?
$12, as that is where the output hits the demand curve.
What price ceiling was imposed by the government in the example?
$800.
What does elastic demand mean?
It means consumers are sensitive to price changes.
What is the formula for Point Price Elasticity of Demand?
Point Price Elasticity of Demand = (ΔQ / Q) / (ΔP / P) = %ΔQ / %ΔP
Why is it harder to increase production at higher quantities?
Firms may need more machines and workers, which can take time.
What happens to the quantity of workers actually hired when a price floor is set?
It decreases.
If the price of oranges increases by 5% and the quantity demanded falls by 5%, what is the nature of the demand?
Unit elastic demand.
What is the duration of the video tutorial for this lesson?
12 minutes and 16 seconds.
What does an upward sloping supply line indicate?
It indicates that as price increases, the quantity supplied also increases.
What is the copyright status of the publication?
© Wizedemy Inc. All Rights Reserved.
What is the initial price of peaches per kilo before the increase?
$3.95.
What is a common example of a price ceiling?
Rent control, where the government prevents landlords from charging above a certain price for rent.
What is the point price elasticity of demand at a price of $20?
To be calculated using the formula: (ΔQ/ΔP) * (P/Q).
What is the formula for calculating Total Revenue?
Expenditure (Total Revenue) = P × Q.
What is the nature of elasticity of supply?
Elasticity of supply is always positive.
What is the new equilibrium quantity after a tax is imposed?
What defines inelastic supply?
Elasticity is between 0 and 1.
What is the initial quantity demanded of textbooks?
100 units.
What is the relationship between quantity demanded and quantity supplied at a price ceiling?
Quantity demanded exceeds quantity supplied, leading to a shortage.
What is the elasticity value for perfectly elastic demand?
Negative infinity.
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.
What is the formula for cross price elasticity of demand?
Cross Price Elasticity of Demand = %Δ P_y / %Δ Q_x.
What happens to spending on luxury goods if income doubles?
Spending increases by more than double.
Give an example of complementary products.
Cars and gas.
What characterizes the demand portion from point A to B?
It is the elastic portion of demand.
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.
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.
What does a small percentage of your income indicate about price sensitivity?
You are likely to be inelastic and continue purchasing the item.
What is a price ceiling?
A government-imposed limit on how high a price can be charged for a product.
Do Fruit Loops have the same price elasticity of demand as food?
No, because Fruit Loops are specifically defined.
What happens when a price ceiling is set below the equilibrium rent?
It creates a shortage in the market.
What could explain the difference in slopes between two demand curves?
The flatter one is for a good with no close substitutes.
What is the income elasticity of normal goods?
Positive relationship; as income increases, consumption of normal goods increases.
What does the supply schedule represent in the labor market?
The number of people willing to work at each wage rate.
What type of good is likely to have a steeper demand curve?
A luxury good.
What does a binding price floor mean?
It must be set above the equilibrium price to be effective.
What happens to Total Revenue when price increases in a unit elastic demand scenario?
Total Revenue will remain unchanged.
What is a consequence of implementing a price floor?
Surplus of workers.
If the price of Pepsi increases by 5% and the quantity demanded falls by 50%, what is the nature of the demand?
Elastic demand.
What happens to the price and quantity supplied from point A to B in the example?
The price doubles from 2 and the quantity supplied doubles from 2 units to 4 units.
What does the new equilibrium price represent when tax is paid by the seller?
The amount paid by consumers.
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.
What happens to producers' tax burden if demand is perfectly elastic?
Producers (sellers) will pay the entire tax.
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.
How does a $3 per unit tax affect the price of the good?
It raises the good’s price by $3 per unit.
What is the amount of tax?
The difference between the consumer price and producer price at the new equilibrium quantity.
Why is a price floor set above equilibrium?
To protect the producers.
What defines elastic supply?
Elasticity is greater than 1.
What does it mean if demand is inelastic?
Consumers are insensitive to price changes.
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.
What does the demand represent in the labor market?
The company that wants to hire workers.
If the price of medicine increases by 50% and the quantity demanded falls by 10%, what is the nature of the demand?
Inelastic demand.
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.
What is an example of a production quota?
A quota on the number of fishing licenses allowed to protect fish populations.
What is NOT an effect of a $3 per unit tax on consumers?
A $3 per unit subsidy paid to producers of the good.
What is a binding minimum wage?
A legally established minimum wage that is above the equilibrium wage.
What occurs to the supply curve when a tax is imposed?
The supply shifts left (upward) from S to S1.
What is an example of inelastic demand related to price changes?
If the price of newspapers doubles from 1, it still represents a small percentage of income.
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.
Give an example of inelastic demand.
Medicine.
Give an example of a product with few substitutes.
Certain types of medicine.
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.
What is the significance of the new equilibrium price after a tax?
The new equilibrium price is still the price paid by consumers.
What is the cross price elasticity of demand for substitutes?
It is positive (>0).
What is a price ceiling?
A maximum price that producers can legally charge consumers, set by the government.
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.
What is one of the main factors that affect the elasticity of demand?
The number of substitutes available.
What is an example of elastic demand?
Switching to alternative transportation methods in the long run as gas prices rise.
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.
What happens to demand elasticity when there are few substitutes?
Consumers become less sensitive to price changes (inelastic demand).
What was the equilibrium rent in the example provided?
$1000.
What portion of the demand curve is always inelastic?
The bottom half (between points B and C).
Why is supply more elastic at lower quantities?
Because it is easier for firms to increase production with minimal resources.
What does the supply represent in the labor market?
The workers willing to work at that job.
What happens to quantity demanded when the price rises in elastic demand?
The quantity demanded will fall by a lot.
What happens to Total Revenue when price decreases in a unit elastic demand scenario?
Total Revenue will remain unchanged.
What illegal activity can arise due to price floors?
Black market activity where employers pay workers under the table.
What is the new price of peaches per kilo after the increase?
$4.05.
What is a price floor?
A minimum price set by the government, such as a minimum wage.
What happens to the supply curve when a tax is imposed?
The supply shifts left (upward) from S to S1.
What is the implication of a price ceiling on the rental market?
It leads to a shortage of available housing units.
What is the final price of textbooks in the example?
$30.
What is the equilibrium wage mentioned in the text?
$10 per hour.
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.
How do you find the price producers receive after a tax?
By taking the new quantity and plugging it into the original supply curve.
What is one consequence of price ceilings?
They can lead to black market activity.
Give an example of elastic demand.
Pepsi.
What is the absolute value of Price Elasticity of Demand (Ed) for products with elastic demand?
Greater than 1.
Give an example of unrelated products.
Cars and oranges.
Give an example of elastic demand.
If the price of shoes increases from 400, consumers are likely to reduce their purchases significantly.
What is the cross price elasticity of demand for unrelated products?
It is equal to zero.
