ch 4- 5 econ 102
Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.
$3.62
When the price of CDs increased from $10.00 to $11.00, the quantity demanded decreased from 240 to 200 units. Using the initial-value approach, the (absolute value) price elasticity of demand is
(Qnew-Qinitial/Qinitial) /( Pnew-Pinitial /Pinitial) <Take abs value elastic
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:
-1.25
The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?
10%, rise
Using the initial value formula, the value of price elasticity of supply between points s and t equals:
2.0
Income and Starbucks Coffee Shops. Starbucks just hired you to determine whether your city could support a new Starbucks coffee shop. There are currently two Starbucks coffee shops in the city, and each has just enough customers to survive. The average household income in the city is expected to increase by 20 percent per year for the next 20 years. Suppose the income elasticity for Starbucks coffee products is 1.25 and the population is assumed to be constant.
25% 2 years
If a 30% increase in price decreases the quantity demanded by 42%, the price elasticity of demand is
42%/ 30% = 1.4
If the income elasticity of SUVs is greater than 1, what is the good considered?
A luxury
College Enrollment and Apartment Prices. Consider a college town where the initial equilibrium price of apartments is $400 and the initial equilibrium quantity is 1,000 apartments. The price elasticity of demand for apartments is 1.0 and the elasticity of supply is 0.50. Suppose the demand for apartments increases by 15%.
An increase in demand increases price; a decrease in demand decreases price.
The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?
An inferior good
What is the cross-price elasticity of demand for two goods that are unrelated?
Zero
Which of the following goods is probably the most highly income elastic?
Private education
Use the Correct Elasticity. Your company currently sells 50 units of salt per year and has decided to increase its price from $1.00 to $1.20 per unit. In a meeting, one person suggests that the company leave price unchanged because "the price elasticity of demand for salt is 0.10. Therefore, if we increase the price, the quantity demanded will decrease by 2 percent." Why is this person incorrect about raising price?
Since demand for salt is price inelastic, total revenue will increase as price increases.
Suppose at the current price, the price elasticity of demand for a campus film series is 1.5. If administrators cut the price, total revenue will increase .
Suppose at the current price, the price elasticity of demand for a campus film series is 2. If administrators raise the price, total revenue will decrease .
Assume that the elasticity of demand for chewing tobacco is 0.70 and the elasticity of supply is 2.30. Suppose an anti-chewing tobacco campaign decreases the demand for chewing tobacco by 16%. The equilibrium price of chewing tobacco will decrease by 5.3 percent (enter your response rounded to two decimal places).
Suppose the elasticity of demand for motel rooms is 1.00 and the elasticity of supply is 0.25. If the demand for motel rooms increases by 10 percent, the equilibrium price of motel rooms will increase by 8 percent (enter your response rounded to one decimal place).
If we are on the lower portion of a linear demand curve, a decrease in price will decrease total revenue.
Suppose we are on the lower portion of a linear demand curve. If the price increases by 1010 percent, the quantity demanded will decrease by less than 10 percent. In this case, total revenue will increase .
Which of these demand curves shows a perfectly inelastic demand?
The demand curve on the left
Price Hikes and Cable TV Revenue. Four years ago, the cable television company in your area increased its price by 27 percent. As a result, its total revenue increased. Last year, a new company started providing television service using satellite dishes. This year the cable company increased its price by 27 percent, but its total revenue fell. This is likely the result of which of the following?
all of the above
An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.
an increase, positive
If the cross-price elasticity of demand between two products is -3.0, then the two products are:
complements
Personal computers and computer display monitors are:
complements
the price elasticity of demand for cigarettes among teenagers is 1.3. If the price of cigarettes increases by 20%, the quantity of cigarettes demanded by teenagers will
decrease by 26%.
Projecting Transit Ridership. As a transit planner, your job is to predict ridership and total fare revenue. Suppose the short-run elasticity of demand for commuter rail (over a one-month period) is 0.60, and the long-run elasticity (over a two-year period) is 1.60. The current ridership is 100,000 people per day. Suppose the transit authority decides to increase its fares from $2.00 to $2.20.
decrease by 6%. decrease by 16%. increase decrease
The short-run elasticity of supply is smaller than the long-run elasticity of supply. This is because the principle of _____ is applicable in the short run.
diminishing returns
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.
elastic
If the supply of Good B is perfectly elastic and price falls the quantity supplied will:
fall to zero
A perfectly inelastic supply occurs when the product supplied is
fixed in quantity.
The more substitutes that exist for a particular product, the __________ the price elasticity of demand.
greater
If demand is elastic, a decrease in price increases total revenue; if demand is inelastic, an increase in price increases total revenue.
if demand is elastic, a decrease in price increases total revenue; if demand is inelastic, a decrease in price decreases total revenue.
MADD Beer Tax. The organization Mothers Against Drunk Driving (MADD) has a target of reducing the number of highway deaths among young adults by 39%. Assume that the number of highway deaths for young adults is proportional to their beer consumption. The price elasticity of demand for beer among young adults is about 1.30. In order to meet the MADD target, the price of beer must
increase by 30%.
If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.
increase, 8.0
A perfectly inelastic supply curve:
indicates the quantity supplied does not respond to a change in price
At current prices of a highly addictive drug the demand for the drug is highly price:
inelastic
If the price elasticity of demand is 0.33 then demand is __________ over that price range.
inelastic
Win-Win. According to an economic consultant, "For your firm, an increase in price is a win-win situation. Your total revenue will increase and your total cost will decrease. Therefore, you'll earn more profit (equal to Total Revenueminus−Total Cost)."
inelastic The demand curve is downward sloping so a price increase will lower output, thus lowering total cost.
Advice to Firm. Suppose a firm that produces clown wigs has a linear demand for its product, with a vertical intercept of $6. If the firm currently charges a price of $1, you advise that since the current price is in the
inelastic range of the demand line, raising the price into the elastic range will increase revenue.
Along a linear demand curve, the slope __________ while the price elasticity of demand __________.
is constant, changes from one point to another
The short-run elasticity of supply of coffee is
less than the long-run elasticity because in the short-run, the number of bushes is fixed.
When you compute a price elasticity of demand the answer is always:
negative
at the mid point of a linear demand curve, the price elasticity of demand is unit elastic .
of a linear demand curve, the price elasticity of demand is inelastic . of a linear demand curve, the price elasticity of demand is elastic . Demand is elastic along the upper portion of the linear demand curve. Demand is inelastic along the lower portion of the linear demand curve.
Economists avoid confusion over units in the computation of elasticity by using:
percentage changes
The price elasticity of supply always has a:
positive value
The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.
price elasticity of demand
The conditions under which an increase in demand will cause a relatively small increase in price are:
small increase in demand; highly elastic demand; highly elastic supply.
If demand is inelastic, the percentage change in
quantity demanded is less than the percentage change in price.
Short Run vs. Long Run in the Pear Market. Suppose in the production of pears, the short-run supply elasticity is 0.25, while the long-run supply elasticity is 3.50. In the short run, a 20.00% increase in the price of pears will cause the quantity supplied of pears to
rise by 5.00 percent. rise by 70.00 percent.
If prices rise the quantity supplied will be greater:
the longer the time that elapses
In the case of the broken gasoline pipeline, the decrease in supply and the resulting increase in price caused a decrease in
the quantity demanded and an increase in the quantity supplied.
