KEY CONCEPTS

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.

Question

price elasticity of demand
elastic demand
inelastic demand
unitary elastic 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
lump-sum tax
incidence of taxation
Goods that have income elasticities greater than 1. When consumer income grows, demand for luxury goods rises more than the rise in income.
A measure of the responsiveness of quantity supplied to changes in price. Elastic supply has elasticity greater than 1, whereas inelastic supply has elasticity less than 1. Time is the most important determinant of the elasticity of supply.
The percentage change in quantity demanded is greater than the percentage change in price. This results in the absolute value of the price elasticity of demand to be greater than 1. Goods with elastic demands are very responsive to changes in price.
A measure of 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.
Goods that have positive income elasticities less than 1. When consumer income grows, demand for normal goods rises, but less than the rise in income.
The time period long enough for firms to alter their plant capacities and for the number of firms in the industry to change. Existing firms can expand or build new plants, or firms can enter or exit the industry.
Goods that are typically consumed together, such as coffee and sugar. 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.
Price elasticity of supply is less than 1. The percentage change in quantity supplied is less 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 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.
The time period when plant capacity and the number of firms in the industry cannot change. Firms can employ more people, have existing employees work overtime, or hire part-time employees to produce more, but this is done in an existing plant.
A tax that rises in percentage of income as income increases.
A measure of how responsive quantity demanded is to changes in consumer income.
The percentage change in quantity demanded is less than the percentage change in price. This results in the absolute value of the price elasticity of demand to be less than 1. Goods with inelastic demands are not very responsive to changes in price.
A tax that falls in percentage of income as income increases.
Goods consumers substitute for one another depending on their relative prices, such as coffee and tea. Substitutes have a positive cross elasticity of demand.
A fixed amount of tax regardless of income. It is a type of regressive tax.
A tax that is a constant proportion of one’s income.
Price x 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.
The percentage change in quantity demanded is just equal to the percentage change in price. This results in the absolute value of the price elasticity of demand to be equal to 1.
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.
The 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).
Goods that have income elasticities that are negative. When consumer income grows, demand for inferior goods falls.
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