to determine whether a good is considered normal or inferior, one could examine the value of the
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income elasticity of demand for that good
-inferior goods: income elasticity <0
-normal goods: income elasticity >0
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income elasticity of demand
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percentage change in quantity demanded/ over percentage change in income
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the price elasticity of demand measures the willingness of
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consumers to buy less of the good as price rises
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the case of perfectly elastic demand is illustrated by a demand curve that is
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horizontal
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suppose good X has a negative elasticity of demand. This implies that good X is an
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inferior good
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the price elasticity of demand for mobile phones
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will be lower if consumers perceive mobile phones to be a necessity
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a key determinant of the price elasticity of supply is the
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time horizon
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the price elasticity for demand of bread
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-is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread
-depends, in part, on the availability of close substitutes for bread
-reflects the many economic, social, and psychological forces that influence consumers' tastes for bread
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the price elasticity of demand for bread is
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influenced by whether consumers view bread as a necessity or luxury
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suppose good X has a positive income elasticity of demand. this implies that good X could be...
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-a normal good
-a necessity
-a luxury
not an inferior good
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income elasticity of demands measures how
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the quantity demanded changes as consumer income changes
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If the price elasticity of demand for a good is 4.0, then a 12 percent decrease in price results in a
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30 percent increase in the quantity demanded
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a legal minimum on the price at which a good can be sold is called a
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price floor
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to determine whether a good is considered normal or inferior, one could examine the value of
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income elasticity of demand for that good
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Suppose X has a negative income elasticity of demand. This implies that good X is
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an inferior good
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Rent control
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is an example of price ceiling
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there are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be
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inelastic
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an example of a price floor is
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the minimum wage
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the minimum wage has its greatest impact on the market for
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teenage labor
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the federal insurance contribution act is an example of a
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payroll tax
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the term tax incidence refers to
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the distribution of the tax burden between buyers and sellers
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minimum wage laws dictate the
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lowest price employers may pay for labor
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a legal maximum on the price at which a good can be sold is called a price
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ceiling
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a tax placed on buyers of tuxedoes shifts the
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demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing he quantity of tuxedoes to decrease
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which of the following will cause an increase in consumer surplus
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a technological improvement in the production of the good
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T/F... Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds slightly to price
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false
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T/F... If the income elasticity of demand for a good is negative, then the good must be an inferior good
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true
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T/F... producer surplus measures the benefit to sellers from receiving a price above their costs
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true
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the minimum wage does not apply to
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unpaid internships
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the benefit that government receives from a tax is measured by
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tax revenue
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the benefit to buyers of participating in a market is measured by
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consumer surplus
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T/F... the economy contains many labor markets for different types of workers
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true
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T/F... each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product
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true
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T/F... the impact of minimum wage depends on the skill and experience of the worker
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true
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the measure of how willing consumers are to buy less of a good as its price rises is called
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price elasticity of demand
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consumer surplus is the
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amount a consumer is willing to pay minus the amount the consumer actually pays
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T/F... A price ceiling is always binding price control, whereas a price floor may be either binding or not binding
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false
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the benefit that government receives from a tax is measure by
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tax revenue
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income elasticity of demand measures how
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the quantity demanded changes as consumer income changes
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for a good that is a necessity...
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-quantity demanded tends to respond substantially to a change in price
-demand tends to be inelastic
-the law of demand does not apply
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the surgeon general announces that eating apples promotes healthy teeth. as a result, the equilibrium price of apples
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increases, and producer surplus increases
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when motorcycles are taxed and sellers of motorcycles are required to pay the tax to the government
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the quantity of motorcycles bought and sold in the market is reduced
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when a tax is placed on the sellers of a product, the
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-size of the market decreases
-effective price received by sellers decreases, and the price paid by buyers increases
-supply of the product decreases
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suppose that good X is a luxury good and that good Y is a necessity. Which good would you expect to have more price inelastic demand?
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good y
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