Economics Chapter 3

Economics Chapter 3
Provincial and Territorial Spending
The responsibilities of provincial and territorial
governments include:
health care
subsidies for post-secondary education
welfare services
The federal government pays a portion of these
costs through the Canada Health and Social
Transfer (CHST).
Federal Spending
Transfer payments to seniors (the Seniors Benefit)
Tax credits to low-income parents (the
Child Tax Credit)
Transfer payments to the unemployed
(Employment Insurance)
Pensions (the Quebec and Canada Pension Plans)
The Economic Role of Government
Besides intervening in private markets, Canadian
governments have an independent role.
Government programs include payments to adults with
children, retirement funds for the elderly, unemployment
insurance, welfare, higher education subsidies, free health
care and schooling, and subsidized public housing.
Price Controls
A price floor is a minimum price set above the
equilibrium price
A price ceiling is a maximum price set below
the equilibrium price
Perfectly Elastic and Perfectly Inelastic Supply
Perfectly elastic supply means constant price and
a horizontal supply curve
Perfectly inelastic supply means constant quantity
supplied and a vertical supply curve
Elastic and Inelastic Supply
Price elasticity of supply measures the
responsiveness of quantity supplied to price changes
Elastic supply means % change in quantity supplied
is more than % change in price
Inelastic supply means % change in quantity supplied
is less than % change in price
Determinants of the Price Elasticity of Demand
Portion of consumer incomes (products with
smaller portions more inelastic)
Access to substitutes (products with more
substitutes more elastic)
Necessities versus luxuries (more inelastic
for necessities and more elastic for luxuries)
Time (more elastic with the passage of time)
Total Revenue and the Price Elasticity of Demand
A price change causes total revenue to change
in the opposite direction when demand is elastic
A price change causes total revenue to change
in the same direction when demand is inelastic
A price change does not affect total revenue
when demand is unit-elastic
Perfectly Elastic and Perfectly Inelastic Demand
Perfectly elastic demand means constant
price and a horizontal demand curve
Perfectly inelastic demand means constant
quantity demanded and a vertical demand curve
Elastic and Inelastic Demand
Price elasticity of demand shows how responsive
consumers are to price changes
Elastic demand means % change in quantity
demanded is more than % change in price
inelastic demand means % change in
quantity demanded is less than % change in
price
Unit-elastic demand means % change in quantity
demand equals % change in price
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