Ch 5
In general, a flatter demand curve is more likely to be price elastic. price inelastic. unit price elastic. none of the above.
price elastic
If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is price inelastic. price elastic. unit price elastic. income inelastic. income elastic.
price elastic.
If there is excess capacity in a production facility, it is likely that the firm's supply curve is price inelastic. price elastic. unit price elastic. none of the above.
price elastic.
In general, a steeper supply curve is more likely to be price elastic. price inelastic. unit price elastic. none of the above.
price inelastic.
Which of the following would cause a demand curve for a good to be price inelastic? There are a great number of substitutes for the good. The good is inferior. The good is a luxury. The good is a necessity.
The good is a necessity.
Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to reduce total revenue to farmers as a whole because the demand for food is inelastic. reduce total revenue to farmers as a whole because the demand for food is elastic. increase total revenue to farmers as a whole because the demand for food is inelastic. increase total revenue to farmers as a whole because the demand for food is elastic.
reduce total revenue to farmers as a whole because the demand for food is inelastic.
A perfectly elastic demand implies that buyers of wheat would not buy any wheat, at all, with any increase in price above the demand curve. buy infinitely more wheat when the price of wheat increases by 1%. buy 100% more wheat when the price of wheat decreases by 10%. buy 5% more wheat when the price of wheat decreases by 10%.
1
Holding all other factors constant and using the midpoint method, if a manufacturer increases production from 600 to 750 units when price increases by 15 percent, then supply is elastic, since the price elasticity of supply is equal to 148. elastic, since the price elasticity of supply is equal to 068. inelastic, since the price elasticity of supply is equal to 068. inelastic, since the price elasticity of supply is equal to 148.
1
If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is 0.15. 1.00. 1.15. 1.50. none of the above.
1
In the market for oil in the long run, demand and supply are elastic, so a shift in supply leads to a small change in price. elastic, so a shift in supply leads to a large change in price. inelastic, so a shift in supply leads to a small change in price. inelastic, so a shift in supply leads to a large change in price.
1
The local restaurant makes such great nachos that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should raise the price of the nachos. lower the price of the nachos. start using cheaper chips in the production of her nachos. leave the price of the nachos unchanged.
1
Which of the following statements helps to explain why government drug interdiction increases drug-related crime? Interdiction results in an increase in the amount of money needed to buy the same amount of drugs. The demand for illegal drugs is elastic. Interdiction changes the market for drugs such that the equilibrium quantity increases. Interdiction reduces the demand for drugs.
1
Suppose the price elasticity of supply for dog biscuits is 08 in the short run and 14 in the long run. If an increase in the demand for dog biscuits causes the price of dog biscuits to increase by 15, then the quantity supplied of dog biscuits will increase by about 12% in the short run and 21 in the long run. 18.8% in the short run and 167% in the long run. 23% in the short run and 29 in the long run. 0.05% in the short run and 009% in the long run.
1 Price elasticity of supply is the percent change in quantity demanded divided by the percent change in price. If the price increases by 15 and the short run price elasticity of supply is 08, the quantity supplied increases by 12 (12/15 =08). If the price increases by 15 and the long run price elasticity of supply is 14, the quantity supplied increases by 21 (21/15 =14).
Supply is usually more elastic in the long run than in the short run because firms cannot easily change the size of their factories over short periods of time. new firms can enter the industry in the short run but not in the long run. consumers are less responsive to price changes in the long run. price changes tend to be more dramatic in the long run.
1 The price elasticity of supply depends on the flexibility of the sellers to change the amount of the good they produce. The longer firms have to adjust to a price change, the more responsive they can be. Over short periods of time, firms cannot easily change the size of their factories or enter industries.
If the cross-price elasticity of demand for two goods is 0.88, then the two goods are complements. substitutes. normal. inelastic.
2
If the price elasticity of demand for a good is 2.0, then a 5 percent increase in price results in a 2.5 percent decrease in the quantity demanded. 10 percent decrease in the quantity demanded. 10 percent increase in the quantity demanded. 0.4 percent decrease in the quantity demanded.
2
If the price of airline tickets falls, when is the price elasticity of demand likely to be the lowest? three months after the price increase immediately after the price increase one year after the price increase one month after the price increase
2
The local restaurant makes such great nachos that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should leave the price of the nachos unchanged. raise the price of the nachos. lower the price of the nachos. start using cheaper chips in the production of her nachos.
2
When the price of bananas is $0.60 per pound, the quantity demanded is 200 pounds per day. When the price falls to $0.45 per pound, the quantity demanded increases to 250. Given this information and using the midpoint method, we know that the demand for bananas is unit elastic. inelastic. perfectly inelastic. elastic.
2
You are in charge of increasing revenue for the city's bus service. The mayor advises you to reduce the price of a bus ticket to get more riders, but you think a more prudent approach would be to increase the price of a bus ticket. Your approach is based on the assumption that the elasticity for bus tickets is irrelevant, and the mayor believes the demand for bus tickets is relevant. the demand for bus tickets is inelastic, and the mayor believes the demand for bus tickets is elastic. there are many substitutes for the bus, and the mayor believes there are few substitutes for the bus. the demand for bus tickets is elastic, and the mayor believes the demand for bus tickets is inelastic.
2
When the price of good A is $14, the quantity demanded of good A is 100 units. When the price of good A falls to $12, the quantity demanded of good A rises to 150 units. Using the midpoint method, the price elasticity of demand for good A is 0.38, and a decrease in price will result in an increase in total revenue for good A. 2.60, and a decrease in price will result in an increase in total revenue for good A. 0.38, and a decrease in price will result in a decrease in total revenue for good A. 2.60, and a decrease in price will result in a decrease in total revenue for good A.
2 Using the midpoint approach, the price elasticity of demand is 2.60, which is elastic. When demand is elastic and the price decreases, total revenue increases. To compute the percent change in quantity, (150-100) / [(150 +100)/2] =0.4. To compute the percent change in price, (12-14) / [(12+14)/2] = -0.15. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 2.60.
Ed says that he would buy 12 gallons of gas every week regardless of the price. If he is telling the truth, Ed's price elasticity of demand for gas is 1 income elasticity of demand for gas is 0 demand for gas is perfectly inelastic. demand for gas is perfectly elastic.
3
The percentage change in quantity demanded divided by the percentage change in price computes the cross-price elasticity of demand. income elasticity of demand. price elasticity of demand. price elasticity of supply.
3
The price elasticity of demand measures how much more of a good buyers purchase when there is a change in the price of a related good. sellers' responsiveness to a change in the price of a good. buyers' responsiveness to a change in the price of a good. the percentage change in quantity demanded divided by the percentage change in income.
3
Suppose there is an 18 percent decrease in the price of a good that has a price elasticity of demand of 4. The percent increase in the quantity demanded must be 4.5 percent. 0.22 percent. 72 percent. 22 percent.
3 The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 72 percent increase in the quantity demanded divided by an 18 percent decrease in price leads to an absolute value of elasticity equal to 4
Tricia's Tea Shop increased its total monthly revenue from $2,520 to $2,750 when it reduced the price of a cup of tea from $3 to $2.50. The price elasticity of demand for Tricia's Tea Shop is 1.00. 0.18. 1.47. 0.68.
3 Without performing any calculations, we know that the price elasticity of demand for Tricia's tea must be elastic because total revenue and price moved in opposite directions. Using the midpoint approach, the price elasticity of demand is about 147 between $3 and $2.50. To determine the relevant quantities, divide the total revenue by the price. When price is $3 and total revenue is $2,520, quantity is840 When price is $2.50 and total revenue is $2,750, quantity is1100. To compute the percent change in quantity, (1100-840) / [(1100 +840/2] =027. To compute the percent change in price, (2.50-3) / [(2.50+3)/2] = -0.18. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of about 147.
Authorities are considering two policies targeted at the market for heroin. The first policy would target the distribution and sale of heroin. The second policy would attempt to educate the public about the dangers of using heroin. If the authorities' primary goal were to reduce the revenue to heroin sellers, so as to make participating in the market less enticing, and assuming both policies would be effective, which of the following statements is correct? The authorities should pursue the second policy because reducing the demand for heroin will increase the price of heroin, thereby reducing revenue to heroin sellers. The authorities should pursue the first policy because reducing the supply of heroin will increase the price of heroin, thereby reducing revenue to heroin sellers. The authorities should pursue the first policy because reducing the supply of heroin will decrease the price of heroin, thereby reducing revenue to heroin sellers. The authorities should pursue the second policy because reducing the demand for heroin will decrease the price of heroin, thereby reducing revenue to heroin sellers.
4
Because the demand for corn tends to be inelastic, the development of a new, pest-resistant strain of corn would tend to increase the demand for corn. increase the total revenue of corn farmers. decrease the supply of corn. decrease the total revenue of corn farmers.
4
Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue? 0 0.67 1 1.67
4
Which of the following is likely to have the most price elastic demand? Moisturizing body wash Soap body wash Dove® moisturizing body wash
4
If the price elasticity of supply is 1.8, and a price increase led to a 4 increase in quantity supplied, then the price increase is about 7.20%. 0.45%. 4.50%. 2.22%.
4 4/1.8
Suppose the cross-price elasticity of demand between pencils and paper is -1.50. This implies that a 10 percent increase in the price of pencils will cause the quantity of paper purchased to rise by 667 percent. fall by 667 percent. rise by 15 percent. fall by 15 percent.
4 A cross-price elasticity of -1.50 implies that a 10 percent increase in the price of pencils will cause a 15 decrease in the quantity of paper purchased.
Joseph's income elasticity of demand for fried chicken meals is -2. All else equal, this means that if his income increases by 5 percent, he will buy 10 percent more fried chicken meals. 2.5 percent fewer fried chicken meals. 5 percent more fried chicken meals. 10 percent fewer fried chicken meals.
4 Joseph's negative income elasticity indicates that he will buy fewer fried chicken meals when his income increases. If income increases by 5, Joseph will by 10 fewer fried chicken meals because -10/5 = -2.
Suppose that 4000 tires are demanded at a particular price. If the price of tires rises from that price by 8 percent, the number of tires demanded falls to 3800. Using the midpoint approach to calculate the price elasticity of demand, it follows that the demand for tires in this price range is unit elastic. demand for tires in this price range is elastic. price elasticity of demand for tires in this price range is 0. demand for tires in this price range is inelastic.
4 Using the midpoint approach, the price elasticity of demand is about 0.63, which indicates inelastic demand. To compute the percent change in quantity, (3800-4000) / [(3800 +4000)/2] = -0.05. The percent change in price is 8 percent, or 0.08. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 0.63.
A perfectly elastic demand implies that buyers of wheat would buy infinitely more wheat when the price of wheat increases by 1%. buy 5% more wheat when the price of wheat decreases by 10%. buy 100% more wheat when the price of wheat decreases by 10%. not buy any wheat, at all, with any increase in price above the demand curve.
4 With perfectly elastic demand, any increase in price above that represented by the demand curve will result in a quantity demanded of zero.
A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the LEAST elastic demand? Amputation procedures for diabetes sufferers Yacht
Amputation procedures for diabetes sufferers
A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the most elastic demand? A heart valve for heart attack victims Diamond necklace
Diamond necklace
T/F An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.
F
T/F If a demand curve is linear, the price elasticity of demand is constant along it.
F
T/F If the cross-price elasticity of demand between two goods is positive, the goods are likely to be complements.
F
T/F If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good.
F
T/F If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price inelastic.
F
T/F The demand for a necessity such as insulin tends to be elastic.
F
T/F The demand for aspirin this month should be more elastic than the demand for aspirin this year.
F
T/F The price elasticity of demand is defined as the percentage change in the price of that good divided by the percentage change in quantity demanded of that good.
F
Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. Beverages Merlot Wine
Least, most, in between
Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. Red bell peppers Vegetables Food
Most elastic in between least elastic
A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the most elastic demand? Chemotherapy for cancer patients Sports car
Sports car
T/F If the demand for a good is price inelastic, an increase in its price will increase total revenue in that market.
T
T/F If the price elasticity of supply for blue jeans is 1.3, an increase of 10 percent in the price of blue jeans would increase the quantity supplied of blue jeans by 13 percent.
T
T/F The demand for tires should be more inelastic than the demand for Goodyear brand tires.
T
T/F The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).
T
T/F The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.
T
T/F The supply of automobiles for this week is likely to be more price inelastic than the supply of automobiles for this year.
T
T/F Using the midpoint method to calculate elasticity, if an increase in the price of pencils from 10 cents to 20 cents reduces the quantity demanded from 1,000 pencils to 500 pencils, then the demand for pencils is unit price elastic.
T
A decrease in supply (shift to the left) will increase total revenue in that market if supply is price elastic. supply is price inelastic. demand is price elastic. demand is price inelastic.
demand is price inelastic.
If the cross-price elasticity between two goods is negative, the two goods are likely to be luxuries. necessities. complements. substitutes.
complements.
A good with many close substitutes is likely to have relatively ________ demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.
elastic
A good without any close substitutes is likely to have relatively _________ demand, since consumers cannot easily switch to a substitute good if the price of the good rises.
inelastic
If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public transportation. Therefore, the demand for gasoline is __________ elastic in the short run than in the long run.
less
If supply is price inelastic, the value of the price elasticity of supply must be zero. less than 1. greater than 1. infinite. none of the above.
less than 1.
The price elasticity of demand is defined as the percentage change in price of a good divided by the percentage change in the quantity demanded of that good. the percentage change in income divided by the percentage change in the quantity demanded. the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good. the percentage change in the quantity demanded divided by the percentage change in income. none of the above.
the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.
If a supply curve for a good is price elastic, then the quantity supplied is sensitive to changes in the price of that good. the quantity supplied is insensitive to changes in the price of that good. the quantity demanded is sensitive to changes in the price of that good. the quantity demanded is insensitive to changes in the price of that good. none of the above.
the quantity supplied is sensitive to changes in the price of that good.
The demand for which of the following is likely to be the most price inelastic? airline tickets bus tickets taxi rides transportation
transportation
Marco says that he will spend exactly $100 per month on restaurant meals, regardless of the price of restaurant meals. Marco's demand for restaurant meals is perfectly elastic. unit elastic. perfectly inelastic. independent of the price of restaurant meals.
unit elastic If Marco spends exactly $100 on restaurant meals, regardless of the price of restaurant meals, the percent change in his quantity demanded will match exactly any percent change in the price, indicating unit elastic demand.
If an increase in the price of a good has no impact on the total revenue in that market, demand must be price inelastic. price elastic. unit price elastic. all of the above.
unit price elastic.
If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, the fisherman's price elasticity of supply for fresh fish is zero. one. infinite. unable to be determined from this information.
zero
