Chapter 6 Homework

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.

an increase, positive

Consider firms that introduce new​ products, such as DVDs in 2001. When firms introduce new​ products, how do they typically determine the price elasticity of demand for those​ products? Firms with new products often A. approximate price elasticity of demand with market signals such as surpluses. B. estimate price elasticity of demand by experimenting with different prices. C. identify price elasticity of demand by asking for government assistance. D. identify price elasticity of demand by using price controls to set price ceilings. E. guess price elasticity of demand based on market competition.

B

Compare the demand for water with the demand for wine. The demand for water is likely A. relatively more elastic because water is a necessity. B. equally elastic as the demand for wine. C. relatively more elastic because water is a luxury. D. relatively more inelastic because water is a luxury. E. relatively more inelastic because water is a necessity.

E

When you compute a price elasticity of demand the answer is always:

negative

Economists avoid confusion over units in the computation of elasticity by using:

percentage changes

Which determinant is the most​ important?

availability of close substitutes

If the supply of Good B is perfectly elastic and price falls the quantity supplied will:

fall to zero

The price elasticity of supply always has a:

positive value

The more substitutes that exist for a particular product, the __________ the price elasticity of demand.

greater

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?

10%, rise

Compare the demand for pencils with demand for gasoline. The demand for pencils is likely A. more elastic because pencils tend to represent a smaller fraction of a​ consumer's budget. B. more elastic because pencils tend to represent a larger fraction of a​ consumer's budget. C. more inelastic because pencils tend to represent a smaller fraction of a​ consumer's budget. D. more elastic because pencils tend to be purchased in larger quantities. E. more inelastic because pencils tend to be purchased more frequently.

C

Suppose a professional basketball game is to be played at a downtown urban ​arena, which increases demand for parking on the night of the game. If the urban area has limited ability to create additional parking during periods of peak​ demand, then A. the supply of parking will be more inelastic and the price of parking will increase by a relatively small amount the night of the game. B. the supply of parking will be perfectly inelastic and the price of parking will increase by a relatively small amount the night of the game. C. the supply of parking will be more elastic and the price of parking will not change the night of the game. D. the supply of parking will be more inelastic and the price of parking will increase by a relatively large amount the night of the game. E. the supply of parking will be more elastic and the price of parking will increase by a relatively large amount the night of the game.

D

If the income elasticity of SUVs is greater than 1, what is the good considered?

a luxury

If the cross-price elasticity of demand between two products is -3.0, then the two products are:

complements

Personal computers and computer display monitors are:

complements

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.

elastic

If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.

increase, 8

A perfectly inelastic supply curve:

indicates the quantity supplied does not respond to a change in price

Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.

price elasticity of demand

Which of the following goods is probably the most highly income elastic?

private education

If prices rise the quantity supplied will be greater:

the longer the time elapses

What is the cross-price elasticity of demand for two goods that are unrelated?

zero

At current prices of a highly addictive drug the demand for the drug is highly price:

inelastic

Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.

$3.62

Consider the market for a new DVD​ movie, where the price is initially ​$8 and 44 copies are sold per day at a​ superstore, as indicated in the figure to the right. The superstore is considering lowering the price to ​$6. What is the price elasticity of demand between these two prices ​(use the Midpoint Formula​)?

-0.30

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:

-1.25

Consider the demand for cigarettes. Suppose the government decreases the price of cigarettes by lowering cigarette taxes. How will this affect the demand for cigarettes over​ time? If the price of cigarettes decreases​, then the quantity of cigarettes demanded will A. increase​, but this effect will likely become smaller​ (in absolute​ value) over time. B. increase​, and this effect will likely become larger​ (in absolute​ value) over time. C. increase​, and this effect will likely remain constant over time. D. likely never change either initially or over time. E. decrease​, and this effect will likely become larger​ (in absolute​ value) over time.

B

What are the key determinants of the price elasticity of demand for a​ product? The key determinants of the price elasticity of demand for a product​ are: A. competition from existing​ firms, threat from potential​ entrants, competition from​ substitutes, bargaining power of​ buyers, and bargaining power of sellers. B. availability of close​ substitutes, passage of​ time, necessities versus​ luxuries, definition of the​ market, and share of the good in the​ consumer's budget. C. whether a firm has market​ power, whether some consumers are willing to pay more for a product than other​ consumers, and ability to segment the market. D. number of​ firms, availability of close​ substitutes, and ease of firm entry and exit. E. government​ regulations, control of a key resource necessary for​ production, network​ externalities, and economies of scale.

B

What is the impact of an increase in worker productivity when demand is relatively more​ elastic? A. A small increase in the price received by the firm. B. An increase in sales revenue received by the firm. C. A large increase in the price received by the firm. D. A decline in sales revenue received by the firm.

B

How is the price elasticity of demand​ measured? The price elasticity of demand is measured as A. the percentage change in the quantity demanded divided by the percentage change in the quantity supplied. B. price divided by the quantity demanded. C. the percentage change in the quantity demanded divided by the percentage change in price. D. the slope of the demand curve. E. the change in the quantity demanded divided by the change in price.

C

Over the past 30​ years, the price of oil has been relatively​ unstable, fluctuating between​ $11.00 and well over​ $100 per barrel. Which of the following potentially contributes to​ oil-price instability? Oil prices are relatively unstable because A. the income elasticity of demand for oil is negative. B. the market for oil is relatively competitive. C. the supply of oil is inelastic. D. the demand for oil is elastic. E. OPEC has been successful in controlling the quantity of oil its members supply.

C

Which of the following is a primary determinant of the price elasticity of supplyLOADING...​? The price elasticity of supply is affected by A. whether the good produced is a luxury or a necessity. B. the share of the good in consumer budgets. C. the passage of time. D. the definition of the market. E. whether the good produced has close substitutes available.

C

What factors impact price​ elasticity? A. time B. proportion of income spent on the product C. availability of close substitutes D. All of the above.

D

What information must economists have to estimate the price elasticity of​ demand? To estimate the price elasticity of​ demand, economists need to know A. the market price and quantity sold. B. total revenue. C. the change in quantity demanded. D. the demand curve for a product. E. the supply curve for a product.

D

What is​ own-price elasticity of​ demand? A. Price elasticity is a measure of how sensitive the quantity demanded of a product is to a change in price. B. Price elasticity is the ratio of the percentage change in the quantity demanded to the percentage change in price. C. Price elasticity is equal to the slope of the demand curve. D. Both A and B are correct. E. All of the above are correct.

D

Suppose Wendy's hamburgers have many close substitutes available. If​ so, then an increase in the price of Wendy's hamburgers will likely A. decrease the quantity of Wendy's hamburgers demanded by a relatively small amount. B. increase the quantity of Wendy's hamburgers demanded by a relatively large amount. C. not change the quantity of Wendy's hamburgers demanded. D. increase the quantity of Wendy's hamburgers demanded by a relatively small amount. E. decrease the quantity of Wendy's hamburgers demanded by a relatively large amount.

E

MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be -2.5 and the price elasticity of demand for all types of breakfast cereals to be -0.9. The demand for Post Raisin Bran cereal is ____________ , and the demand for all types of breakfast cereals is _____________ . Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast​ cereals? Post Raisin Bran cereal A. is more of a necessity. B. is defined more broadly. C. is consumed over a shorter period of time. D. is a smaller share of a​ consumer's budget. E. has more substitutes available.

elastic, inelastic , E

The disappearance of the family farm can be partially attributed to the fact that the elasticity of demand for wheat is __________, while at the same time, the income elasticity for wheat is __________.

inelastic, low

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?

inferior

In​ particular, the supply curve for a particular product will be increasingly more elastic over a ___________ period of time.

longer

Suppose the price of pepper increases by 10 percent​ and, as a​ result, the quantity of salt demanded​ (holding the price of salt ​constant) decreases by 7 percent. The​ cross-price elasticity of demand between pepper and salt is __________________. ​(Enter your response rounded to two decimal places and include a minus sign if​ appropriate.) In this​ example, pepper and salt are ________________ . ​Instead, suppose pepper and salt were substitutes. If​ so, then the​ cross-price elasticity of demand between pepper and salt would be A. less than 1. B. negative. C. greater than minus1. D. positive. E. zero.

negative 0.7, complements, D