Podcast
Questions and Answers
What economic concept does the price elasticity of demand primarily quantify?
What economic concept does the price elasticity of demand primarily quantify?
- The responsiveness of quantity demanded to alterations in a product's price. (correct)
- The shift in the demand curve caused by changes in consumer income.
- The degree to which producers react to changes in consumer preferences.
- The change in producer's revenue when production costs fluctuate.
If a consumer, Salima, exclusively prefers Coca-Cola, while Antonia views both Coca-Cola and Pepsi as acceptable, how would their demands differ in terms of elasticity?
If a consumer, Salima, exclusively prefers Coca-Cola, while Antonia views both Coca-Cola and Pepsi as acceptable, how would their demands differ in terms of elasticity?
- Salima's demand is relatively inelastic; Antonia's demand is relatively more elastic. (correct)
- Salima's demand is perfectly elastic; Antonia's demand is elastic.
- Salima's demand is more elastic; Antonia's demand is unrelated to price.
- Both demands are unitarily elastic, indicating equal responsiveness.
Given a price elasticity of demand of -2.0, what would be the resulting change in quantity demanded if the price is reduced by 5%?
Given a price elasticity of demand of -2.0, what would be the resulting change in quantity demanded if the price is reduced by 5%?
- An increase of 2.5%
- An increase of 10% (correct)
- A decrease of 10%
- A decrease of 2.5%
When the price of twisty ties decreases by 5%, the quantity supplied by firms decreases by 10%. What is the price elasticity of supply for twisty ties?
When the price of twisty ties decreases by 5%, the quantity supplied by firms decreases by 10%. What is the price elasticity of supply for twisty ties?
What economic term describes the difference between what a consumer is willing to pay for a good and the actual amount they pay?
What economic term describes the difference between what a consumer is willing to pay for a good and the actual amount they pay?
Henry purchases a marker for $3.50, even though he was willing to pay $5.00. Amy buys the same marker for $3.50, despite being willing to pay $4.00. What is their combined consumer surplus?
Henry purchases a marker for $3.50, even though he was willing to pay $5.00. Amy buys the same marker for $3.50, despite being willing to pay $4.00. What is their combined consumer surplus?
Which of the following accurately defines producer surplus?
Which of the following accurately defines producer surplus?
In a supply and demand graph, if 'PE' represents the equilibrium price before a tax and 'QT' represents the quantity sold after the tax, which area(s) typically represent consumer surplus before the tax is imposed?
In a supply and demand graph, if 'PE' represents the equilibrium price before a tax and 'QT' represents the quantity sold after the tax, which area(s) typically represent consumer surplus before the tax is imposed?
In a market where a tax has been imposed, leading to a difference between the price consumers pay (Pc) and what producers receive (Ps), which area(s) on a standard supply and demand graph represent consumer surplus after the imposition of the tax?
In a market where a tax has been imposed, leading to a difference between the price consumers pay (Pc) and what producers receive (Ps), which area(s) on a standard supply and demand graph represent consumer surplus after the imposition of the tax?
In a market affected by a tax, where 'Pc' is the price consumers pay and 'PS' is the price producers receive after the tax, how is the amount of the tax measured graphically?
In a market affected by a tax, where 'Pc' is the price consumers pay and 'PS' is the price producers receive after the tax, how is the amount of the tax measured graphically?
Flashcards
Price elasticity of demand
Price elasticity of demand
Measures how much the quantity demanded changes with price changes.
Coca-Cola vs. Pepsi
Coca-Cola vs. Pepsi
Salima's demand for Coca-Cola will be relatively more inelastic, while Antonia's demand will be relatively more elastic.
Price elasticity of demand is -2.0
Price elasticity of demand is -2.0
A 5% decrease in price will increase the quantity demanded by 10%.
Price elasticity of supply
Price elasticity of supply
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Consumer Surplus
Consumer Surplus
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Consumer surplus for Henry and Amy
Consumer surplus for Henry and Amy
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Producer surplus
Producer surplus
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Consumer Surplus
Consumer Surplus
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Consumer Surplus After Tax
Consumer Surplus After Tax
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Producer Surplus Before Tax
Producer Surplus Before Tax
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Study Notes
- Price elasticity of demand measures a consumer's sensitivity to a price change.
- Salima's demand for Coca-Cola will be relatively more inelastic, while Antonia's demand will be relatively more elastic
- If the price elasticity of demand is -2.0, a 5% decrease in price will increase the quantity demanded by 10%.
- Firms supplying twisty ties decrease the quantity supplied by 10% when the price decreases by 5%. The price elasticity of supply for twisty ties is 2.0.
- The difference between the willingness to pay for a good and the amount paid to get it is known as consumer surplus.
- Henry purchases a fine-point marker for $3.50 but was willing to pay $5.00. Amy purchases the marker for $3.50 but was willing to pay $4.00. The total consumer surplus for Henry and Amy is $2.00.
- Producer surplus is defined as the difference between the price the seller receives and the price they are willing to accept for the good or service.
Taxes and Surplus Illustration
- The graph depicts a market where a tax has been imposed.
- PE was the equilibrium price before the tax was imposed, and QE was the equilibrium quantity.
- After the tax, PC is the price consumers pay, and PS is the price producers receive.
- QT units are sold after the tax is imposed.
- Areas B and C are rectangles that are divided by the supply curve ST
Consumer surplus questions
- Consumer surplus before the tax is imposed is represented by area ABF.
- After the tax is imposed, consumer surplus is represented by area A.
- Producer surplus before the tax is imposed is represented by area ECG.
- Producer surplus after the tax is imposed is area E
- Total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed is A+B+C+E+F+G.
- The total amount of producer and consumer surplus (i.e., social welfare) in this market after the tax is imposed is A+E
- The amount of the tax, as measured along the y-axis is PC-PS
- Total tax revenue created as a result of the tax is represented by area BC
- The deadweight loss created as a result of the tax is represented by area FG
Price Gouging Law Effects
- With a $7 price gouging law imposed on hand sanitizer, a shortage of 200 bottles will occur.
- This is based on a pre-pandemic price of $5, demand of 500, and supply of 600.
- After the pandemic, demand increases to 700 at a price of $9, but the maximum price is capped at $7
Price Ceilings and Floors
- Laws limiting the maximum interest a lender can charge are an example of a price ceiling.
- A binding price ceiling will lead to the quantity demanded exceeding the quantity supplied.
- A surplus exists under a binding price floor because the price floor makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market.
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