Microeconomics: Elasticity Quiz

Income elasticity is positive for what good?

A normal good

A positive cross elasticity of demand is characteristic of what kind of good?

Substitutes

The elasticity coefficient is negative (Cross Elasticity) for...

Complements

"A measure of the responsiveness of quantity demanded to changes in income." This statement defines which type of elasticity?

Income Elasticity of Demand

When demand is perfectly inelastic or supply is perfectly elastic, who pays the full tax?

Buyers

When demand is elastic or supply is perfectly inelastic, who pays the full tax?

Sellers

The more inelastic the demand, the ________ the percentage of the tax that the buyer will pay.

larger

The more elastic the demand, the ________ the percentage of tax that the buyer will pay.

smaller

If the percentage change in quantity supplied is greater than the percentage change in price,...

...then the supply is elastic.

If the percentage change in quantity supplied is less than the percentage change in price,...

...then the supply is inelastic.

If the percentage change in quantity supplied is equal to the percentage change in price,...

...then supply is unit elastic.

Cross elasticity measure the...

...responsiveness in the quantity demanded of one good to changes in the price of another good.

If Ec > 0, then...

...two goods are substitutes for each other.

If Ec < 0, then...

...two goods are complements to each other.

If Ey > 0, then...

the good is a normal good.

If Ey < 0, then...

...the good is an inferior good.

If Ey > 1, then...

demand income is elastic. (Demand is responsive to a change in income; demand changes more than income changes.)

If Ey < 1, then...

...demand is inelastic. (Demand is not very responsive to a change in income; demand changes less than income changes.)

If Ey = 1, then...

...demand is unit elastic. (Demand changes just as much as income changes.)

True or false: The placement of a tax is different from its payment.

True

True or false: The more substitutes a good has, the higher is the price elasticity of demand for the good.

True

True or false: The fewer substitutes a good has, the higher is the price elasticity of demand.

False; the fewer the substitutes a good has, the lower is the price elasticity of demand.

True or false: Total revenue equals price divided by quantity sold.

False; total revenue equals the price times quantity sold. E.g.: A man sold 500 burgers for $3 each. What was his total revenue (TR)? --- $1500 = $3 times 500.

If demand is elastic, price and total revenue are...

inversely related: as price rises, total revenue falls. As price falls, total revenue rises.

If demand is inelastic, price and total revenue are...

directly related: as price rises, total revenue rises. As price falls, total revenue falls.

If demand is unit elastic,...

total revenue is independent of price: as price rises or falls, total revenue remains constant. (The TR never changes-- it stays the exact same amount.)