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AGR 110 Chapter Notes - Chapter 8, 9: Economic Equilibrium, Demand Curve

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School
ISU
Department
Agriculture
Course
AGR 110
Professor
Michelle Kibler

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Document Summary

Elasticity a measure of the responsiveness of one variable to a small change in another variable. Elasticity = the percentage change in one economic variable resulting from a percentage change in another economic variable. Elasticity of supply = the percentage change in the quantity supplied in response to a percentage increase in price. Es = (% change in qs) / (% change in p) Inelastic supply = a change in price brings about a relatively smaller change in quantity supplied. Elastic supply = a change in price brings about a relatively larger change in quantity supplied. Unitary elastic supply = the percentage change in price brings about an equal percentage change in quantity supplied. E = (change qs/qs) / (change p/p) = (change qs/change p) * (p/qs) Arc elasticity = a formula that measures responsiveness along a specific section (arc) or a supply of demand curve, and measures the average price elasticity between two points on the curve.

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Related Questions

interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

marginal revenue

point elasticity

price effect

quantity effect

total revenue

unitary elastic demand

1. __________________ A measure of consumers’ sensitivity or responsiveness to changes in the price of a good or service.

2. ___________________ When the percentage change in price (in absolute value) is more than the percentage change in quantity demanded (in absolute value).

3. ___________________ When the percentage change in quantity demanded (in absolute value) is more than the percentage change in price (in absolute value).

4. ___________________ When the percentage change in quantity demanded (in absolute value) is just equal to the percentage change in price (in absolute value).

5. ___________________ Total amount paid to a producer for a good or service P * Q.

6. ___________________ The effect on total revenue of a change in price, holding quantity constant.

7. ___________________ The effect on total revenue of a change in quantity, holding price constant.

8. ___________________ An elasticity calculated over an interval of a demand curve or demand schedule.

9. ___________________ Elasticity at a specific price or point on a demand curve.

10. ___________________ A measure of how responsive quantity demanded is to a change in income, all other things constant.

11. ___________________ A measure showing how responsive the quantity demanded of one good is to changes in the price of another good, other factors constant.

12. ___________________ The additional revenue received by producing and selling one more unit of output.

13. ___________________ Units of output that could have been sold at a higher price had the firm not lowered its price to sell additional (marginal) units.

1. Suppose that a 10% increase in the wage results in a 5% reduction in employment. In this case, labor demand is said to be:

A. elastic

B. inelastic

C. unit elastic

2. Which of the following best explains why elasticity varies along a linear demand curve?

A. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) while the percentage change in wage increases.

B. As the quantity of labor demanded rises, the percentage change in quantity demanded rises (for a given change in labor use) as does the percentage change in the wage.

C. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) as does the percentage change in the wage.

D. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) while the percentage change in wage decreases

3. Labor demand is more elastic when:

A. the substitution effect resulting from a wage change is larger

B. the scale effect resulting from a wage change is larger

C. both are correct

D. none of the above

4. The scale effect associated with a change in the wage is larger when:

A. the demand for the final product is more elastic

B. labor costs are a smaller share of total costs

C. there are many close substitutes for this category of labor

D. economics of scale are present in the production of the good

5. The price elasticity of demand for the final products affects the own-wage elasticity of demand for labor by affecting the magnitude of:

A. the substitution effect that occurs in the labor market

B. the scale effect that occurs in the labor market

C. both substitution and scale effects

D. neither substitution nor scale effects

6. Unions are expected to attempt to:

A. make it more difficult to replace labor with other resources

B. reduce the elasticity of demand for the final product

C. support laws that reduce the elasticity of supply of other resources

D. all of the above.

E. none of the above

7. Unions are likely to be less successful in negotiating higher wages in those labor markets in which:

A. the demand for the final product is more elastic

B. there are few close substitutes for union workers

C. the price elasticity of supply for other factors of production is relatively high

D. labor costs comprise a small share of total costs

1. The concept of price elasticity of demand measures:

a. the slope of the demand curve.

b. the number of buyers in a market.

c. the extent to which the demand curve shifts as the result of a price decline.

d. the sensitiveness of quantities demanded to price changes.

2. When the percentage change in price is less than the resulting percentage change in quantity demanded:

a. demand is elastic.

b. demand is inelastic.

c. demand is unit elastic.

d. none of the above.

3. The elasticity of demand:

a. will be the same at each price-quantity combination on a stable demand curve.

b. tends to be elastic in high-price ranges and inelastic in low-price ranges.

c. tends to be inelastic in high-price ranges and elastic in low-price ranges.

d. is infinitely large for a perfectly inelastic demand curve.

4. Suppose that as the price of Y falls from $2.00 to $1.80 the quantity of Y demanded increases from 110 to 121. It can be concluded that the price elasticity of demand is: _______.

5. Total revenue rises as the price of a good increases if price elasticity of demand is:

a. unitary elastic

b. perfectly inelastic.

6. The demand for such products as salt, bread, and electricity tend to be:

a. relatively price elastic.

b. relatively price inelastic.

c. of unit price elasticity.

d. perfectly price elastic.