Podcast
Questions and Answers
Why do economists prefer to use elasticity rather than the slope of the demand curve to measure the responsiveness of quantity demanded to a change in price?
Why do economists prefer to use elasticity rather than the slope of the demand curve to measure the responsiveness of quantity demanded to a change in price?
- Slope is affected by changes in income, while elasticity remains constant.
- Elasticity is easier to calculate than slope.
- Elasticity provides a unit-free measure, allowing for comparisons across different goods and services. (correct)
- Slope is only applicable for linear demand curves, while elasticity can be used for any demand curve.
If the price elasticity of demand for a good is 2.5, and the price decreases by 4%, what will be the approximate percentage change in quantity demanded?
If the price elasticity of demand for a good is 2.5, and the price decreases by 4%, what will be the approximate percentage change in quantity demanded?
- Increase by 10% (correct)
- Increase by 6.5%
- Decrease by 6.5%
- Decrease by 10%
Which of the following is most likely to have a price elasticity of demand that is elastic?
Which of the following is most likely to have a price elasticity of demand that is elastic?
- Salt
- Luxury sports car (correct)
- Electricity
- Medication
How does the price elasticity of demand typically change along a linear demand curve as you move from higher prices to lower prices?
How does the price elasticity of demand typically change along a linear demand curve as you move from higher prices to lower prices?
If a firm lowers its price and total revenue increases, what can be said about the price elasticity of demand for its product in the elastic range?
If a firm lowers its price and total revenue increases, what can be said about the price elasticity of demand for its product in the elastic range?
The cross-price elasticity of demand between two goods is -1.5. What does this indicate about the relationship between these goods?
The cross-price elasticity of demand between two goods is -1.5. What does this indicate about the relationship between these goods?
A binding price ceiling is set below the equilibrium price. What is the likely effect of this policy?
A binding price ceiling is set below the equilibrium price. What is the likely effect of this policy?
When a tax is imposed on a good, the relative tax burden on buyers and sellers depends on:
When a tax is imposed on a good, the relative tax burden on buyers and sellers depends on:
What is the likely impact of rent control on the quantity and quality of available housing?
What is the likely impact of rent control on the quantity and quality of available housing?
The government provides a subsidy to producers of solar panels. What is the most likely result?
The government provides a subsidy to producers of solar panels. What is the most likely result?
Flashcards
Price Elasticity of Demand
Price Elasticity of Demand
Responsiveness of quantity demanded to a change in price.
Midpoint Method
Midpoint Method
Using the average price and quantity to calculate percentage changes.
Elastic Demand
Elastic Demand
Demand where quantity demanded changes significantly with price.
Inelastic Demand
Inelastic Demand
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Price Controls
Price Controls
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Price Ceiling
Price Ceiling
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Price Floor
Price Floor
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Deadweight Loss
Deadweight Loss
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Tax Wedge
Tax Wedge
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Subsidy
Subsidy
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Study Notes
- ECO 2023 Exam 2 covers material from Modules 6-8.
Exam Details
- The exam is taken at the UCF College of Business Testing Center.
- UCF ID, writing utensil, and non-programmable calculator are required.
- The exam is 90 minutes long and consists of 45 questions.
- Questions can be multiple-choice, numerical, or fill-in-the-blank.
How to Prepare
- Review homework and learning curve problems.
- Review lecture videos and worked example videos.
- Review in-class activities.
- Supplement learning with end-of-chapter questions.
- Create flashcards for vocabulary review.
- Practice using graphical models.
- Answer the questions at the start of each lecture video.
- Review learning objectives for each module.
Module 6 – Elasticity
- Knowledge of the midpoint formula and elasticity formulas is essential.
- Elasticity is preferred over slope for calculating price sensitivity.
- Use the midpoint method to calculate percent change.
Price Elasticity of Demand
- Calculate elasticity from a demand curve, demand schedule, or given values.
- Interpret elasticity to determine if demand is elastic, inelastic, or unit elastic using absolute values.
- Understand the determinants of price elasticity of demand.
- Explain the relationship between price elasticity and total revenue.
- Understand relationship between slope and price elasticity, flatter curves are more elastic.
- Understand Elasticity along a linear demand curve
Cross-Price and Income Elasticity
- Learn how to calculate cross-price and income elasticity.
Elasticity of Supply
- Learn how to interpret elasticity of supply.
- Calculate elasticity of supply from a supply curve, supply schedule, or given values.
- Understand the determinants of elasticity of supply.
Module 7 – Price Controls
- Understand the motivation for implementing price controls.
- Differentiate between binding and non-binding price controls.
- Ascertain the quantity sold under price controls.
- Determine if price controls lead to a shortage or surplus.
Welfare Impacts of Price Controls
- Consumer surplus impacts.
- Producer surplus impacts.
- Deadweight loss from price controls.
- Understand the effects of price ceilings and price floors.
- Rent control implications
- Minimum wage implications
Module 8 – Taxes and Subsidies
- Modeling taxes on buyers and sellers requires being able to identify shifts in curves and the new equilibrium.
- Tax wedge: the difference between what buyers pay and sellers receive.
- Determine the price buyers pay vs sellers.
- Calculate consumer and producer tax burden.
- Relate tax burden to relative elasticity.
Taxes
- Calculate and identify the following graphically for tax:
- Consumer surplus, producer surplus, and deadweight loss.
- Tax revenue
- Model subsidies on buyers and sellers.
- Subsidy wedge: the difference between what buyers pay and sellers receive due to the subsidy.
Subsidies
- Find the price buyers and sellers receive with subsidies.
- Calculate and identify graphically the effects of a subsidy on:
- Consumer surplus, producer surplus, and deadweight loss.
- Cost of subsidy
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