A student asks… What is the total revenue test of the price elasticity of demand? Does it work for the demand for all goods? The short answers is “a test of the price elasticity of demand using a change in total revenue” and “yes.” How does total revenue depend on the price and the quantity … Continue reading What is the Total Revenue Test of the Price Elasticity of Demand? Does it Work for the Demand for all Goods?

A student asks… How do we calculate chained-dollar real GDP when the base year is the later year? What is chained-dollar real GDP? Chained-dollar real GDP measures the value of real GDP in each year in base-year dollars. How do we calculate chained-dollar real GDP when the reference base year is the later year? The … Continue reading Calculating Chained-dollar Real GDP when the Base Year is Later

A student asks… When is the tax on a good paid entirely by buyers or sellers? The short answer: For a tax on a good to be paid entirely by buyers, either demand must be perfectly inelastic, or supply must be perfectly elastic (or both). And for a tax on a good to be paid … Continue reading When is the Tax on a Good Paid Entirely by Buyers or Sellers?

A student asks … How do we calculate consumers surplus and producer surplus from a graph and from a data table? What is consumer surplus? When you buy something for less than it is worth to you, you receive consumer surplus. Consumer surplus is the excess of the benefit received from a good or service … Continue reading How Do We Calculate Consumer Surplus and Producer Surplus?

A student asks… Why is the elasticity of supply smaller in the short run than in the long run? What is the elasticity of supply? The elasticity of supply is the responsiveness of the quantity supplied of a good to a change in its price, other things remaining the same. It is a units-free measure, … Continue reading Why is the elasticity of supply smaller in the short run?

A student asks… Can something affect demand and supply at the same time? What is demand? Demand is the relationship between the price of a good and the quantity demanded of that good. Demand is illustrated as a demand schedule or a demand curve. The quantity demanded is a point on a demand curve—the quantity … Continue reading Can something affect demand and supply?

A student asks… Why is a PPF bowed outward? Why isn’t it just a line? What is a PPF? The quantities of goods and services we can produce are limited by our available resources and by technology. If we want to increase our production of one good, we must decrease our production of something else. … Continue reading Why is a PPF bowed outward?

A student asks… Can a statement be both positive and normative? What is a positive statement? A positive statement is about what is. A positive statement might be right or wrong, and we can test it by checking it against the facts. “In April 2020, the United States documented its highest unemployment rate since 1948 … Continue reading Can a statement be both positive and normative?

Here’s a simple concept to apply. Remember it and you’ll never mess up when it comes to moving along a curve or shifting it. Look at what is measured on the y-axis. If it changes, move along the curve. If something else relevant changes, shift the curve.Here’s an example. The graph in Figure 1 measures … Continue reading Do I Move Along a Curve or Shift It?