TOPICS
price elasticity of
demand
tax incidence and efficiency
loss
OUTCOMES
define price elasticity
of demand
What is the difference between the
"Law of Demand" and the "Price Elasticity of
Demand"?
calculate the coefficient of price
elasticity of demand using the midpoint
formula
explain why the midpoint formula
is used
know how to interpret the
coefficient (what does the number mean?)
price elastic demand
price inelastic demand
unit elastic demand
how does the price elasticity of
demand change along a single demand curve?
perfectly price elastic demand
(graph)
perfectly price inelastic demand
(graph)
total revenue test (how do price
changes affect total revenue with different elasticities
(show graphically)
P x Q = TR
explain how the shape of the total
revenue graph is explained by the price elasticity of
demand
know the determinants of price
elasticity of demand and be able to use them to make an
educated guess as to whether a product has an elastic or
inelastic demand
Why might farm incomes fall if
crops are good (bumper crops)?
how does the price elasticity of
demand explain the rise in street crime after a major
drug bust?
how does price elasticity of
demand help explain how the minimum wage affects
unemployment?
define price discrimination and
explain the role of the price elasticity of
demand
define "excise tax" and give
examples
understand the connection between
price elasticity of demand and the effect of excise taxes
on (1) tax incidence (burden), (2) tax revenue, and (3)
allocative efficiency (social welfare)
explain the efficiency loss of
excise taxes using the (1) MSB = MSC model and (2) the
consumer and producer surplus model (dead weight
loss)
the role of excise taxes in income
redistribution and reducing negative
externalities
Use
the concept of the price elasticity of demand to answer
these questions:
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