Elasticity and Demand Review

These flashcards cover key concepts of elasticity, demand determinants, income elasticity, price elasticity, and effects of market interventions as discussed in the lecture notes.

What is the formula for Price Elasticity of Demand using the midpoint method?

Price Elasticity of Demand = $\frac{\%\Delta Q_d}{\%\Delta P} = \frac{Q_2 - Q_1}{(Q_2 + Q_1) / 2} \div \frac{P_2 - P_1}{(P_2 + P_1) / 2}$.

What does a cross-price elasticity of demand of -3 indicate?

It indicates that the goods are complements, and a decrease in the price of one good leads to an increase in the demand for the other.

Which factor is NOT a determinant of price elasticity of demand?

The steepness or flatness of the supply curve for the good.

What does an income elasticity of -0.7 suggest when income increases by 10%?

The product is inferior, and the quantity demanded will decrease by 7%.

What happens when price elasticity of demand is elastic?

A consumer is relatively responsive to a change in price.

If a consumer insists on buying every song regardless of price, what is their price elasticity of demand for those songs?

Perfectly inelastic.

How does Zosimo's demand for soy milk compare to Antonia's in terms of elasticity?

Zosimo’s demand is relatively more inelastic; Antonia’s demand is relatively more elastic.

What is the expected sign of the cross-price elasticity for substitute goods?

Positive.

When income increases and sushi demand rises from 3 to 7 rolls at a price of $3, what is the income elasticity of demand?

1.33.

What does it mean if the demand for popcorn increases when the price is lowered?

The demand is elastic.

If the price changes by 5% and the price elasticity of demand is 0, what is the percentage change in quantity demanded?

Does not change.

Which statement about the perfectly inelastic supply curve is FALSE?

Over time, the price elasticity of supply becomes more inelastic.

What is the price elasticity of supply if the quantity of pens supplied increases from 100 to 150 when the price rises from $1.50 to $2.50?

1.25.

If the supply of a good is perfectly inelastic, what will the price elasticity of supply equal?

Zero.

In the context of auctions, who tends to win in a Dutch auction?

The first person to bid.

Which type of tax will consumers lose a greater amount of surplus from?

If demand is less elastic than supply.

What happens to consumer surplus when moving from equilibrium A to equilibrium B if it decreases?

There is a decrease in total surplus.

What is the effect of a non-binding price floor?

It will have no effect on the market price.

What result occurs if the minimum wage is set above the equilibrium wage?

There will be an excess supply of labor, causing unemployment.

The federal minimum wage in the United States was first established by which legislation?

Fair Labor Standards Act.

How will a binding price ceiling on a drug affect its market?

It will create a shortage.