chapter 5

if the price of an ice cream cones increases from $2.00 to $2.20 and the amount you buy falls from 10 to 8 cones, then your elasticity of demand, using the midpoint formula, would be calculated as

(10-8)/[(10+8)/2]=22% (2.20-2.00)/[(2.20+2.00)/2]9.5% 22/9.5=2.32%

price elasticity of demand in formula form

(Q2-Q1)/[((Q2+Q1))/2] / (P2-P1)/[(P2-P1)/2]

total revenue formula

TR=PxQ

Suppose that consumers' incomes rise by 3% and this causes demand for a good to increase by 4.5%. What is the income elasticity of demand? a. 1.50 b. 0.67 c. -1.50 d. -0.67

a. 1.50

The price elasticity of demand tends to be more elastic: a. at points further up and to the left along the demand curve. b. at points further down and to the right along the demand curve. c. when the demand curve becomes steeper. d. when the demand curve is vertical.

a. at points further up and to the left along the demand curve.

A decrease in supply (shift to the left) will increase total revenue in that market if a.demand is price inelastic. b.supply is price elastic. c.supply is price inelastic. d.demand is price elastic.

a.demand is price inelastic.

If demand is linear (a straight line), then price elasticity of demand is a.elastic in the upper portion and inelastic in the lower portion. b.inelastic in the upper portion and elastic in the lower portion. c.inelastic throughout. d.constant along the demand curve. e.elastic throughout.

a.elastic in the upper portion and inelastic in the lower portion.

the price elasticity of demand and it determinants

availability of close substitutes necessities vs luxuries definition of the market time horzion

What effect will an increase in the price have on total revenue if demand is elastic? a. Total revenue will increase. b. Total revenue will decrease. c. Total revenue will first decrease and then increase. d. Total revenue will remain unchanged.

b. Total revenue will decrease.

Suppose that a good has an income elasticity of demand of -2.0. This means that the good is: a. normal. b. inferior. c. a substitute. d. a complement.

b. inferior.

total revenue is the amount paid by ________ and received by ________ of a good

buyers; sellers

elasticity is a measure of how much ____________ and __________ respond to changes in market conditions

buyers;sellers

The price of good A increases from $4.50 to $5.50. This causes the quantity demanded of good B to increase from 900 to 1100 units per month. Find the cross price elasticity of demand using the mid-point method. a. -1.0 b. +2.0 c. +1.0 d. -2.0

c. +1.0

Suppose that General Cars increases the price of its Cadiclap model from $13,500 to $16,500. As a result of this, the quantity demanded of the Cadiclap model decreases from 600,000 to 400,000 per year. Find the price elasticity of demand of the Cadiclap using the mid-point method. a. -3.0 b. -0.5 c. -2.0 d. -0.3

c. -2.0

A good will tend to have an inelastic demand if: a. the good has many close substitutes. b. the good is a luxury. c. the market is defined very broadly. d. the time horizon is long.

c. the market is defined very broadly.

If consumers think that there are very few substitutes for a good, then a.supply would tend to be price elastic. b.none of these answers. c.demand would tend to be price inelastic. d.demand would tend to be price elastic. e.supply would tend to be price inelastic.

c.demand would tend to be price inelastic.

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 a.income inelastic. b.price inelastic. c.price elastic. d.unit price elastic. e.income elastic.

c.price elastic.

Suppose that two goods have a cross-price elasticity of demand of -0.8. This means that these goods are: a. normal. b. inferior. c. substitutes. d. complements.

d. complements.

A perfectly elastic demand is represented graphically by a: a. relatively steep demand curve. b. relatively flat demand curve. c. vertical demand curve. d. horizontal demand curve.

d. horizontal demand curve.

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to a.increase total revenue to farmers as a whole because the demand for food is elastic. b.increase total revenue to farmers as a whole because the demand for food is inelastic. c.reduce total revenue to farmers as a whole because the demand for food is elastic. d.reduce total revenue to farmers as a whole because the demand for food is inelastic.

d.reduce total revenue to farmers as a whole because the demand for food is inelastic.

________demand; quantity demanded responds strongly to changes in price. the price elasticity of demand is greater than 1

elastic

goods consumers regard as luxuries tend to be income ___________ ex.sports cars, furs, expensive food

elastic

perfectly_____________; quantity demanded changes infinitely with any changes in the price.

elastic

____________measures how much the quantity demanded of a good responds to a change in the consumers income

income elasticity

___________ demand ; quantity demand does not respond strongly to price changes the price elasticity of demand is less than 1

inelastic

goods consumers regard as necessities tend to be income _________, ex: food, fuel, clothing, utilities, and medical services

inelastic

perfectly ______________; quantity demanded does not respond to price change

inelastic

demand tends to be more elastic; the _________ the number of close substitutes if the good is a ___________ the more _______defined the market the ________ the time period

large luxury narrowly longer

the ________formula is preferable when calculating the price elasticity of demand because it gives the same answer regardless of the direction of change

midpoint

higher income raises the quantity demanded for ___________ but lowers the quantity demanded for ____________

normal good inferior goods

_________________is a measure of how much the quantity demanded of a good responds to a change in the price of that good

price elasticity of demand

_____________is a measure of how much the quantity supplied of a good responds to a change in the price of that good.

price elasticity of supply

the price elasticity of demand is computed as the % change in ___________ divided by the _____________

quantity demanded; the percentage change in price

price elasticity of a demand is the % change in _____________ given a percent change in the _____________

quantity demanded; the price

price elasticity of supply is the percentage change in _________resulting from a percent change in ______

quantity supplied price

income elasticity demanded is computed at the percentage change in ____________ divided by the percentage change in __________

quantity' income

elasticity allows us to analyze _________ and _________ with ________________

supply; demand greater precisions

a cigarette company is thinking of raising its price to 10%. price elasticity of demand for the cigarettes is known as 0.3. what will happen to the quantity demanded for the cigs? will the cig company's total revenue rise of fall

the price increases and demand decreases as price increases total revenue will increase

the midpoint method is a better way to calculate percentage changes and elastics. T or F

true