Elasticity and Market Dynamics

A comprehensive set of flashcards covering elasticity concepts, market dynamics, and consumer/producer surplus from Chapters 5-8.

The price elasticity of demand measures the responsiveness of to changes in price.

Quantity demanded

If the price elasticity of demand is greater than 1, it is considered __.

Elastic

If the price elasticity of demand is less than 1, it is considered __.

Inelastic

If the price elasticity of demand equals 1, the demand is described as __.

Unit elastic

The formula for price elasticity of demand is __. (Hint: include the midpoint formula components)

%ΔQd / %ΔP or (AQd/Qm) / (AP/Pm)

An increase in price will reduce total revenue if the demand is __.

Elastic

An increase in price will increase total revenue if the demand is __.

Inelastic

Perfectly elastic demand has a price elasticity of __.

Infinity

Perfectly inelastic demand has a price elasticity of __.

Zero

The linear demand function has different elasticities at different points, being elastic at __ prices.

High

The linear demand function has different elasticities at different points, being inelastic at __ prices.

Low

Income elasticity of demand measures how quantity demanded responds to changes in __.

Income

Cross price elasticity measures how quantity demanded of one good responds to changes in the price of __.

Another good

Consumer surplus is the area below the __ curve and above the price level.

Demand

The formula for the area of a triangle is __.

(1/2) * base * height

Willingness to pay (WTP) represents the maximum price a buyer is willing to pay for a __.

Good or service

A binding price ceiling leads to a __ in the market.

Shortage

A binding price floor leads to a __ in the market.

Surplus

If demand is more inelastic than supply, the tax burden falls mostly on __.

Consumers

If a tax is levied on consumers, the demand curve will __.

Shift left (decrease)

The result of taxation on consumers vs producers is __.

Identical