Chapter 5

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

0.67.

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

40 percent decrease in the quantity demanded.

It is likely that a. the demand for flat-screen computer monitors is more elastic than the demand for monitors in general. b. the demand for grandfather clocks is more elastic than the demand for wristwatches. c. the demand for cardboard is more elastic over a long period of time than over a short period of time

All of the above are correct

When quantity demanded responds strongly to changes in price, demand is said to be

elastic.

Which of the following statements is not valid when supply is perfectly elastic? a. The elasticity of supply approaches infinity. b. The supply curve is horizontal. c. Very small changes in price lead to large changes in quantity supplied. d. The time period under consideration is more likely a short period rather than a long period

The time period under consideration is more likely a short period rather than a long period.

Demand is said to be elastic if

buyers respond substantially to changes in the price of the good.

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, they are

assuming that the demand for university education is inelastic.

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

elastic and the demand curve will be horizontal

The main reason for using the midpoint method to calculate an elasticity is that it

gives the same answer regardless of whether the price increases or decreases

Demand is elastic if elasticity is

greater than 1.

For which of the following goods is demand probably most inelastic? a. camcorders b. insulin c. apples d. devices that remove cores from apples

insulin

When demand is inelastic the price elasticity of demand is

less than 1, and price and total revenue will move in the same direction.

The price elasticity of demand changes as we move along a

linear, downward-sloping demand curve

Economists compute the price elasticity of demand as the

percentage change in quantity demanded divided by the percentage change in price.

Given the market for illegal drugs, when the government is successful in reducing the flow of drugs into the United States,

supply decreases, demand is unaffected, and price increases.

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

supply is more elastic at low levels of output and less elastic at high levels of output.

If sellers do not adjust their quantities supplied at all in response to a change in price,

supply is perfectly inelastic

If the quantity supplied responds only slightly to changes in price, then

supply is said to be inelastic.

There are very few, if any, good substitutes for motor oil. Therefore,

the demand for motor oil would tend to be inelastic.

You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf course in order to meet expenses. The mayor advises you to increase the price of a round of golf. The city manager recommends reducing the price of a round of golf. You realize that

the mayor thinks demand is inelastic and the city manager thinks demand is elastic.

Total revenue will be at its largest value on a linear demand curve at

the midpoint of the curve.

Consider airfares on flights between New York and Minneapolis. When the airfare is $250, the quantity demanded of tickets is 2,000 per week. When the airfare is $280, the quantity demanded of tickets is 1,700 per week. Using the midpoint method,

the price elasticity of demand is about 1.43 and an increase in the airfare will cause airlines' total revenue to decrease.

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good.