Chapter 4
A perfectly elastic demand curve
can be represented by a line parallel to the horizontal axis
When purchases of tennis socks decline following an increase in the price of tennis sneakers (other things remaining equal), the relationship between these two items can be described as
complementary
The sensitivity of the change in quantity consumed of one good to a change in the price of a related good is called
cross-elasticity
If the price of a good is increased and total revenue received from the sale of this good increases, then the price elasticity of demand for the good is
inelastic
If the demand for a product is said to be relatively inelastic, the "absolute" value of the elasticity coefficient will be
less than one
The cross-price elasticity of demand for coffee and coffee-cream is likely to be
less than zero
If government imposes an excise tax on a good and the tax burden is borne equally by buyers and sellers, then
the absolute values of price elasticities of demand and supply are equal.
If a firm decreases the price of a good and total revenue decreases, then
the demand for this good is price inelastic
The elasticity of demand for a product is likely to be greater
the larger the number of substitute products available
The derived demand curve for a good component will be more inelastic
the more inelastic is the demand curve for the final good.
If the price elasticity of supply of a good is elastic and the good price increases, then the increase in the good's supply should be
greater than the increase in price.
The cross-price elasticity of demand for coffee and tea is likely to be
greater than zero
The government unit that wants to achieve "revenue enhancement" will find it considerably more favorable to enact an excise tax on goods whose demand is
highly inelastic
If the demand for a good is price inelastic and the good price is increased, then the marginal revenue (MR) received by the seller will
increase
Remembering that demand elasticity is defined as the percentage change in quantity divided by the percentage change in price, if price decreases and, in percentage terms, quantity rises more than price has dropped, total revenue will
increase
Other things remaining the same, an increase in the price of butter can be expected to
increase margarine sales
Assuming mustard and burgers are complements, a decline in the price of burgers will
increase the demand for mustard
Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units, the coefficient of elasticity of demand for beans using the arc elasticity approach is
-0.75
The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1, the quantity sold per hour fell from 18 to 8. The arc elasticity of demand for lettuce is
-1.15
Suppose the price of crude oil drops from $150 a barrel to $120 a barrel. The quantity bought remains unchanged at 100 barrels. The coefficient of price elasticity of demand in this example would be
0
Which of the following instances will total revenue or receipts decline?
Price rises and demand is elastic.
If government imposes a price ceiling on a good that is below the market equilibrium price
a shortage will develop
When a government imposes a price floor on a good that is above the market equilibrium price
a surplus will develop.
If the income elasticity of a particular good is negative 0.2, it would be considered
an inferior good
A tax that is imposed as a specific amount per unit of a good is a(n)
excise or specific tax
If the consumption of sugar does not change at all following a price increase from 50 cents per pound to 65 cents for pound, the demand for sugar is considered to be
perfectly inelastic
The minimum wage is an example of a government imposed
price control and price floor
If an item has several good substitutes, the demand curve is likely to be
relatively elastic
If OPEC increases its price of oil, and still the demand for oil decreases by a very small amount, we can conclude that the demand for oil is
relatively inelastic
Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units. In this example, the demand for beans is said to be
relatively inelastic
The price elasticity of demand is a measure of
the responsiveness of the quantity demanded to price changes
If the price of a good is decreased and total revenue received from the sale of this good does not change, then the price elasticity of demand for the good is
unitary
The cross-price elasticity of demand for coffee and caskets is likely to be
zero
When total revenue reaches its peak (elasticity equals 1), marginal revenue reaches
zero
