Reading/Study Guide - Chapter 6 – Elasticity, Producer Surplus, & Consumer Surplus

Answer the following:

1. Explain the meaning of elastic, inelastic, and unitary price elasticity of demand. Give coefficient examples for each.

Elastic:

Inelatsic:

Unit Elastic:

2. Graph perfectly elastic demand:

3. Graph perfectly inelastic demand:

4. What is the formula for the Total Revenue Test?

5. Formula for price elasticity of demand:

6. List four major determinants of price elasticity of demand:

7. Define price elasticity of supply:

8. Why is time the main determinant of the price elasticity of supply?

9. Formula for cross price elasticity:

10. Explain, using coefficients, cross elasticity of demand and how it is used to determine substitute or complementary goods:

11. Formula for income elasticity:

12. Explain, using coefficients, income elasticity and its relationship to normal and inferior goods.

13. Explain consumer surplus:

14. Explain producer surplus:

15. Draw a properly labeled supply and demand graph showing consumer and producer surplus:

16. Why is DWL inefficient?