3. Applying the Supply and Demand Model

A price elasticity of demand is inelastic if it is:

a. between -1 and 0

b. between 0 and 1

c. greater than 1

d. less than -1

a

If a price increase causes revenue to rise, the demand curve is _ at the initial price

inelastic

According to an estimated demand curve, when US income rises by 1%, the demand for imported fresh grapes rises by 3.3%. Thus the income elasticity for this good is _.

3.3

The price elasticity of supply equals:

a. the percentage change in the price divided by the percentage change in the quantity supplied

b. the percentage change in the quantity supplied divided by the percentage change in the price

c. the slope of the supply curve

d. the inverse of the slope of the supply curve

b

If the government collects a specific tax from consumers, the price consumers pay is _ if the government taxes firms

the same as

When the government places a specific tax on firms, the price to consumers:

a. never increases

b. usually increases by more than the unit tax

c. usually increases by less than the unit tax

d. always increases by the full amount of the tax

c

If the supply curve is perfectly inelastic at all prices, then the incidence of a specific tax on consumers is _.

0, there is no change in price.

cross-price elasticity of demand

the percentage change in the quantity demanded in response to a given percentage change in the price of another good.

elasticity

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

incidence of a tax on consumers

the share of the tax that falls on consumers.

income elasticity of demand (aka income elasticity)

the percentage change in the quantity demanded in response to a given percentage change in income.

price elasticity of demand (aka elasticity of demand)

the percentage change in the quantity demanded in response to a given percentage change in the price.

price elasticity of supply (aka elasticity of supply)

the percentage change in the quantity supplied in response to a given percentage change in the price.