SOCSTUD FINAL EXAM

• When it is not binding, the government sets the price ABOVE the market equilibrium whenever it's a price ceiling however, the government sets the price BELOW the market equilibrium whenever its a price floor
• When it's not binding the price ceiling and price floor has NO EFFECT on the quantity
• The market will move the economy to the equilibrium when it is NOT BINDING
• Binding constraint... the government sets the price ceiling BELOW the equilibrium
• Binding constraint... the government sets the floor price ABOVE the equilibrium
• Binding constraint... both of the price ceiling and floors will have the supply and demand move towards the market equilibrium
• Binding constraint... when the price REACHES the price floor it cannot DOWN anymore
• Binding constraint...when the price HITS the price ceiling it cannot go up/above anymore
• Price elasticity measures how much buyers and sellers responds to the changes in the market
• Price elasticity discovers the direction and the impact of the change in price
• Elastic is the quantity supplied and/or demanded responds largely to the change in price
• Inelastic is the quantity supplied and/or demanded responds slightly to the change in price
• Demand in price elasticity is the measure how much the quantity demanded responds to the change in price
• Goods with close substitutes tend to be more elastic and vise versa
• margarine and butter are an example of elastic
• eggs are an example of inelastic
• Necessities are INELASTIC because whether the price changes or not, people will still buy it because we need it to survive
• Luxuries are ELASTIC because we can buy it anytime and we don't need it. Also, if the price changes or not, it can postpone us from buying the product
• Broader markets are inelastic because it is not specific enough so it would be harder to find a substitute for it
• Specific markets are elastic because the product Is identified clearly and we can find substitutes for it easily
• Dairy is an example of a broad market
• strawberry yogurt is an example of a specific market
• longer time horizons is elastic because the buyer has time to make changes in their lives that factors the need into buying a product
• shorter time horizons is inelastic because the buyer has no time to make changes in their lives that factor the need into buying a product
• percentage method of elasticity measures the direction to know the elasticity and gets the exact impact
• midpoint method measures the elasticity without the direction and gets the estimates of the impact
• income elasticity measures the quantity demanded as the consumer's income changes
• normal goods have a positive elasticity because of the increase in demand goes in the same direction as the increase in income
• inferior goods have a negative elasticity because of the increase of demand of normal goods and increase of income
• cross price elasticity is the change in QD of one good when the price of another changes
• substitute goods are POSITIVE elasticity. it moves in the same direction as the one good.
• supplementary goods are NEGATIVE elasticity because the change of one good will go in the opposite direction as the supplementary good
• flexibility of the seller to change refers to the nature of the seller or where they are producing their own good
• supply is how quantity supplied responds to the change in price
• if a firm can create an output quickly then it is an elastic
• if a firm can create an output in a longer time then it is a inelastic supply
• if a firm has no spare capacity it is an inelastic because they might struggle on changing their supply
• if a firm has a spare capacity then they have an elastic supply and they can adjust their supply to price changes
• if there are many barriers then it is an inelastic supply because there are very few business and firms.
• if the barrier is low then it Is elastic because there would be a lot of companies and firms