Elasticity and Incentives Quiz & Flashcards

Questions and Answers

What do incentives affect in the market?

consumers or producers

Which statement best describes incentives?

Incentives can be positive (correct)

Incentives do not affect behavior

Incentives can be negative (correct)

Incentives are always monetary

Why might a consumer respond to a negative incentive?

to avoid additional charges

What is the lowest amount a manufacturer can pay factory workers called?

price floor Signup and view all the answers

Goods that are considered to be needs tend to be?

inelastic when the price changes Signup and view all the answers

If a good is inelastic, what does that mean?

its supply or demand is not sensitive to price changes Signup and view all the answers

What will most likely result from a price floor on bread set above the market price?

The demand for bread will fall, which could result in an excess supply Signup and view all the answers

What does the bottom horizontal line represent in the graph of price compared to quantity demanded and supplied?

an ineffective price ceiling set above equilibrium Signup and view all the answers

Which is an example of a negative incentive for producers?

NOT a coupon clipped from a newspaper Signup and view all the answers

Who can set price controls on goods?

governments Signup and view all the answers

What does the decrease in consumer demand for Tasty Treat Tea suggest?

Tasty Treat Tea is an elastic good because it is more of a want than a need Signup and view all the answers

A pair of stylish sneakers could be considered a ______ because it is not a necessity.

want Signup and view all the answers

What is the difference between a price floor and a price ceiling?

A price floor is the minimum price allowed for a good. A price ceiling is the maximum price allowed for a good Signup and view all the answers

What does the graph show about how the amount produced changes with price?

NOT the amount produced slightly changes with the price Signup and view all the answers

Study Notes

Incentives

Incentives influence the behavior of consumers and producers within the market.
They can be categorized as positive, which encourage certain behaviors, or negative, which discourage them.

Consumer Responses

Consumers may react to negative incentives to avoid extra charges or penalties.

Price Floors

A price floor is the minimum price that can be charged for a good, exemplified by a set price for factory workers.
Government-imposed price floors, like on bread, can lead to decreased demand and potential excess supply, as consumers may not be willing to pay the higher price.

Elasticity of Goods

Goods deemed necessities tend to have inelastic demand, meaning their quantity demanded does not change significantly with price changes.
Conversely, luxury items or non-essential goods, like Tasty Treat Tea, have elastic demand, indicating that price increases can significantly decrease consumer demand.

Price Controls

Price controls, established by governments, include regulations like price floors and ceilings.
A price ceiling sets a maximum allowable price for a good, while a price floor sets a minimum price.

Market Dynamics

The relationship between price and quantity demanded or supplied is visually represented in economic graphs, indicating market behavior under different price controls.
A price ceiling effectively creates a situation where the price is unable to rise above a set point, leading to potential shortages.

Implications of Price Changes

When the cost of essential goods rises, as seen with Tasty Treat Tea due to imported ingredients, consumer demand typically decreases, illustrating the concept of elasticity.
Non-essential items, like trendy sneakers, are classified as "wants" and show more sensitivity to price shifts.

Summary of Price Controls

Price floors ensure producers do not sell below certain prices while price ceilings prevent prices from exceeding certain limits, impacting the overall market supply and demand dynamics.

Description

Explore key concepts related to elasticity and incentives through these flashcards. Learn how incentives influence consumer and producer behavior, and discover the nuances of positive and negative incentives in the market. Perfect for reinforcing your understanding of economic principles.