Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.
price elasticity of demand elastic demand inelastic demand unitary elasticity of demand total revenue cross elasticity of demand substitutes complements income elasticity of demand normal goods luxury goods inferior goods price elasticity of supply elastic supply inelastic supply unitary elastic supply market period short run long run progressive tax flat tax regressive tax lumpsum tax incidence of taxation | The absolute value of the price elasticity of demand is greater than 1. Elastic demands are very responsive to changes in price. The percentage change in quantity demanded is greater than the percentage change in price Price elasticity of supply is equal to 1. The percentage change in quantity supplied is equal to the percentage change in price A period of time sufficient for firms to adjust all factors of production, including plant capacity. Existing firms can expand or build new plants, or firms can enter or exit the industry A tax that rises in percentage of income as income increases The absolute value of the price elasticity of demand is equal to 1. The percentage change in quantity demanded is just equal to the percentage change in price Goods that have income elasticities greater than 1. When consumer income grows, quantity demanded of luxury goods rises more than the rise in income Goods that have positive income elasticities of less than 1. When consumer income grows, quantity demanded rises for normal goods, but less than the rise in income Measures how responsive the quantity demanded of one good is to changes in the price of another good. Substitute goods have positive cross elasticities: An increase in the price of one good leads consumers to substitute (buy more of) the other good whose price has not changed. Complementary goods have negative cross elasticities: An increase in the price of a complement leads to a reduction in sales of the other good whose price has not changed Measures how responsive quantity demanded is to changes in consumer income A tax that is a constant proportion of one’s income A fixed amount of tax regardless of income, and is a type of regressive tax Refers to who bears the economic burden of a tax. The economic entity bearing the burden of a particular tax will depend on the price elasticities of demand and supply Time period so short that the output and the number of firms are fixed. Agricultural products at harvest time face market periods. Products that unexpectedly become instant hits face market periods (there is a lag between when the firm realizes it has a hit on its hands and when inventory can be replaced) Price elasticity of supply is less than 1. The percentage change in quantity supplied is less than the percentage change in price A measure of the responsiveness of quantity demanded to a change in price, equal to the percentage change in quantity demanded divided by the percentage change in price Goods that are typically consumed together. When the price of a complementary good rises, the demand for the other good declines, and vice versa. Complements have a negative cross elasticity of demand Price elasticity of supply is greater than 1. The percentage change in quantity supplied is greater than the percentage change in price A period of time over which at least one factor of production (resource) is fixed, or cannot be changed. Firms can employ more people, have existing employees work overtime, or hire parttime employees to produce more, but this is done in an existing plant Goods that have income elasticities that are negative. When consumer income grows, quantity demanded falls for inferior goods A measure of the responsiveness of quantity supplied to changes in price. An elastic supply curve has elasticity greater than 1, whereas inelastic supplies have elasticities less than 1. Time is the most important determinant of the elasticity of supply The absolute value of the price elasticity of demand is less than 1. Inelastic demands are not very responsive to changes in price. The percentage change in quantity demanded is less than the percentage change in price Price × quantity demanded (sold). If demand is elastic and price rises, quantity demanded falls off significantly and total revenue declines, and vice versa. If demand is inelastic and price rises, quantity demanded does not decline much and total revenue rises, and vice versa A tax that falls in percentage of income as income increases Goods consumers will substitute for one another depending on their relative prices. When the price of one good rises and the demand for another good increases, they are substitute goods, and vice versa. Substitutes have a positive cross elasticity of demand |