Elasticity

Deadweight loss is more pronounced when a tax is placed on goods and services with an____________ demand.

• elastic

• inelastic

If the demand for a product is inelastic, what does this tell you about consumer behavior?

• Consumers are really responsive to changes in price and significantly change the amount they buy based on prices.

• Consumers are not responsive to changes in price and don't significantly change the amount they buy based on prices.

• Consumers are completely unresponsive to changes in price and will buy the good no matter what.

• Consumers are really responsive to changes in price but only when the price decreases.

If the government decides to tax a product with the goal being to maximize tax revenue which type of good should they tax?

• Goods with an elastic demand so that people can choose whether to buy them or not.

• Goods with an inelastic demand so that people will buy them even with the tax.

• The potential revenue will not be impacted based on whether the demand for a good is elastic or inelastic.

• Goods with a perfectly elastic demand.

If the price of coffee drops from $6 to $5 and sales rise from 80 to 85, what is the price elasticity of demand? (Use the midpoint formula!)

• .37

• .33

• 1.34

• -.33

Match the following definitions to the correct term.

• Demand Elasticity

• When a given change in price causes a relatively smaller change in quantity demanded

• Inelastic

• When a given change in price causes a relatively larger change in quantity demanded

• Elasticity

• General measure of responsiveness (cause and effect relationship)

• Unit Elastic

• When a given change in price causes a proportional change in quantity demanded

• Elastic

• Extent to which a change in price causes a change in quantity demanded, aka whether it is a big or small change

Which of the following is NOT one of the questions to ask yourself when determining demand elasticity?

• Can purchase be delayed?

• Are there substitues available?

• Does the purchase use a large portion of the income?

• None of the above.

Is the following example one for elastic or inelastic demand: Gasoline prices skyrocket.

• Elastic

• Inelastic

​ (a)   demand - price changes have little effect on the quantity you buy.

​ (b)   demand - price changes have a significant effect on the quantity you buy.

• Inelastic

• Elastic

​ ​ ​ (a)   demand means that a change in price causes a large or big change in quantity. People are very influenced by changes in price.

• elastic

• Inelastic

• high

The formula for elasticity is...

• (final - Initial) / Initial

  All X 100 = % Chng.

• % Chg. Q / % Chg. P

• PXQ