Chapter 5: Elasticity
perfectly elastic
(Figure: Interpreting Elasticity of Supply) How would you describe supply as shown in the graph?
the midpoint of the demand curve
A firm will maximize total revenue if it sells its product at a price that corresponds to
total revenue will increase.
A gas station owner in a large city learned in his microeconomics class that buyers are relatively unresponsive to changes in the price of gasoline. If, based on that assumption, he increases the price of gas at his station
regressive tax.
A tax in which the percentage of income tax rises as income falls is known as a
flat tax
Alvaro pays $40 in tax on a $120 item. Nurul pays $80 in tax on a $240 item. We can conclude that this tax is a
number of substitutes
An analyst states that the demand for Pepsi is more elastic than the demand for cola. This represents which of the determinants of elasticity?
Total revenue will stay the same.
Assume that the price elasticity of demand for T-shirts is unitary elastic. If a surf shop increases the price of its T-shirts, what will happen to the total revenue from T-shirt sales?
$64
Charming Accessories, Inc., sold a total of 32 headbands. If the headbands were sold at a price of $2 each, what is the total revenue?
the quantity axis
Inelastic supply curves always cross
inelastic; people do not have time to adjust their consumption patterns
Home heating gas tends to have _____ demand because _____.
inelastic
If a 30% decrease in the price of paper leads to a 15% increase in quantity demanded, price elasticity of demand for paper is considered
total revenue will double
If a firm sells a product that has a perfectly inelastic demand curve, then, if price doubles, it can be expected that:
There would be no change in total revenue.
If a store sells a good that has a unitary elastic demand, what would be the net result on their total revenue from an increase in price?
buyer; small
If demand is inelastic, the tax burden falls primarily on the _____ and deadweight loss is _____.
increase by 4%.
If grapefruits have a price elasticity of 4, that means that for every 1% decrease in price, the quantity demanded will
0.5
If price increases by 100% and quantity demanded decreases by 50%, then the price elasticity of demand will equal _____.
substitute for good B.
If the cross elasticity of demand for good A with respect to good B is 2.3, then good A is a(n)
elastic
If the price elasticity of demand for ice cream is 1.6, then the price elasticity for ice cream is considered
elastic
If the price of a product falls by 15% and the quantity supplied falls by 25%, we can say that the elasticity of supply is
total revenue will rise
If the price of apples causes quantity demanded to fall on the inelastic portion of the (linear) demand curve, what will an increase in price do to total revenue?
1/5
If the price of coffee increases by 50% and the quantity demanded falls by 10%, then what is the price elasticity of demand for coffee?
more elastic is supply.
In general, the flatter the supply curve is, the
aceg
In the figure below, which area represents tax revenue collected by the government after a tax is levied?
2
In the figure below, which supply curve is the most elastic?
long run
In which period can firms decide to leave an industry?
demand is inelastic and supply is inelastic
Less deadweight loss results from the imposition of a tax when
1/2
Lindsay recently received a 50% raise at her firm. As a result, her consumption of sushi increased by 25%. What is Lindsay's income elasticity of demand for sushi?
More elasticity than
Short-run supply curves are _____ market period supply curves
Inelastic
Stores often advertise "one day only" sales. This technique uses the time period to make demand more
relatively large.
Suppose the demand for toxic waste disposal is very elastic. The government imposes an excise tax on waste disposal. The deadweight loss associated with the production of toxic waste disposal will be
horizontal
The demand curve for a perfectly elastic product will be
Gold sales will decrease by 80%
The price of gold increases by 200%. If the price elasticity of demand for gold is 0.4, what will happen in the market?
time
The primary determinant of the elasticity of supply is
In the long run
The supply curve is more elastic
Quantity demanded will stay the same.
What will happen to the quantity demanded of a perfectly inelastic product when its price increases by 5%?
It will not change.
What will happen to the quantity demanded of a perfectly inelastic product when the price increases by 10%?
the elasticity of demand changes from elastic to inelastic
When moving down along a straight-line demand curve
1
When the increase in price for a new video game is 10%, the increase in quantity supplied of that new video game is 10%. What is the price elasticity of supply for that video game?
substitutes
When the price of product A rises, the quantity of product B that is purchased increases. Products A and B are
shrimp
Which of the following is least price elastic?
taxi service
Which of the following is least price inelastic?
shrimp
Which of the following markets is likely to have the least deadweight loss after an excise tax? Assume supply is perfectly inelastic
taxi service
Which of the following markets is likely to have the most deadweight loss after an excise tax? Assume supply is perfectly inelastic.
7
Which of the following values of Ed represents the largest price elasticity of demand?
