Question

1. If incomes increase by 10% and this causes demand for some good to fall by 15%, then the income elasticity is ____________________ and this is a(n) _______________________ good.

2. If the elasticity of supply is 2.5, what happens when price increases by 6%? Is supply elastic or inelastic?

3. For complements, the ________________________ elasticity is always _____________________ and for substitutes it is always ______________________.

4. As more of a good is produced, the marginal cost of producing that good ______________________.

5. If the price goes from $5 to $6 and the quantity supplied goes from 8,000 to 9,000 the elasticity of supply is _______________________ and the supply curve (around this point) is ____________________.

6. A _________________________ statement describes “what is” while a _______________________ statement describes “what ought to be.”

7. Rent control is an example of a price ______________________ while minimum wage is an example of a price _________________________.

8. A negative tax is called a ________________________. This will generally cause output to be __________________ than the efficient quantity.

9. As someone gets more of a good, their ____________________ value increases and their ______________________ value decreases

Answer 1

. If incomes increase by 10% and this causes demand for some good to fall by 15%, then the income elasticity is _negative_and this is a(n) inferior good.

2. If the elasticity of supply is 2.5, what happens when price increases by 6%? Is supply elastic or inelastic?

ANS: If Elasticity of supply id greater than one then it is inelastic, which means it is not sensitive to change in price. Therefore it remains inelastic even with 6% increase in price.

3. For complements, the cross demand  elasticity is always -ve and for substitutes it is always +ve.

4. As more of a good is produced, the marginal cost of producing that good Increases.

5. If the price goes from $5 to $6 and the quantity supplied goes from 8,000 to 9,000 the elasticity of supply is 0.625 and the supply curve (around this point) is Inelastic.

note: Price Elasticity of supply= %change in Quantity Supplied/ % change in price

= (9000-8000/8000) / (6-5/ 5) = 0.625

6. A positive economics statement describes “what is” while a normative economics statement describes “what ought to be.”

7. Rent control is an example of a price ceiling while minimum wage is an example of a price Floor.

8. A negative tax is called a (NIT) negative income tax. This will generally cause output to be Less than the efficient quantity.

9. As someone gets more of a good, their Satisafctionary value increases and their Utility value decreases