eco ch 4

f the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output of 6 percent?

3 percent.

Which of the following best explains the source of consumer surplus for Good A?

Many consumers would be willing to pay more than the market price for some units of Good A.Consumer surplus results from consumers who are able to purchase a good for less than their reservation price (i.e., when the current market price is less than the maximum they would be willing to pay).

If Stephanie buys a laptop for $700 and the maximum she would have paid was $1,000, which of the following is true?

Stephanie received a consumer surplus of $300.

If the price elasticity of demand was 4.0 (in absolute terms), a 10% off sale would lead to:

a 40% increase in purchases by customers.The price elasticity of demand Ed is defined as percentage change in quantity demanded divided by percentage change in price (elasticity is expressed in absolute terms, omitting the negative sign).

Which of the following is an example of an unintended consequence?

a price ceiling on gasoline that causes a gas shortage

The imposition of a price ceiling on a market often results in:

a shortage.The imposition of a price ceiling on a market often results in a shortage.

If the supply curve for a product is vertical, then the elasticity of supply is:

equal to zero.

If the elasticity of supply of bangles is equal to 1, an increase in the price of bangles will:

increase the quantity supplied and increase total revenue.

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases:

the quantity of lettuce supplied will increase.Let's carry out the analysis step by step (see graph below).

If the elasticity of demand for bangles is equal to 1, an increase in price will:

. decrease the quantity demanded but leave total revenue unchanged.

The elasticity of supply is defined as the ____ change in quantity supplied divided by the ____ change in price.

. percentage; percentage

Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts?

0.33

Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?

3.0

A perfectly elastic supply curve is:

A perfectly elastic supply curve is the one with a elasticity equal to infinity. The price elasticity of supply is equal to infinity, when a very small percentage change in price (mathematically tending to zero) produces a very large percentage change in quantity supplied (mathematically tending to infinity). That is the extreme case when the supply curve is horizontal.

Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:

a surplus in the wheat market and an increase the quantity of gasoline traded.

The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 5% increase in price would lead to:

an 8% decrease in the quantity of gourmet coffee demanded.

Ceteris paribus, an increase in the price of a good will cause the:

consumer surplus derived from the good to decrease.An increase in the price of a good will cause the consumer surplus derived from the good to decrease.

For a given increase in price, a greater elasticity of demand will result in a greater

decrease in quantity demandedFor example, if a good's price increases by 1%, quantity demanded would decrease by 2%, if price elasticity of demand is 2. However, quantity demanded would decrease by 5%, if price elasticity of demand is 5.

To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:

decrease in the volume of sales whether the price is forced up or down.

A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses. The administration is considering a tuition increase to help balance the budget. An economist might advise the school to:

decrease tuition in order to increase revenue by boosting enrollment.-decrease tuition because demand for courses is elastic

Elasticity of demand will ____ as the availability of substitutes ____.

decrease; increasesC. increase; increases

Price elasticity of demand is defined as:

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

A 10% decrease in the price of energy bars leads to a 20% increase in the quantity of energy bars demanded. It appears that:

demand is elastic and total revenue will increase.Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. So, if a 10% decrease in the price of energy bars leads to a 20% increase in the quantity of energy bars demanded, the price elasticity of demand is Ed = 20/10 = 2, which implies that the demand for energy bars is elastic.

If an increase in price causes total expenditure on a product to decrease, then the price elasticity of demand is:

elastic

A price cut will increase the total revenue a firm receives if the demand for its product is:

elastic.

A steel mill raises the price of steel by 7%, which results in a 20% reduction in the quantity of steel demanded. The demand curve facing this firm is:

elastic.

Demand is said to be ____ when the quantity demanded is very responsive to changes in price.

elastic. Demand is said to be elastic, when the quantity demanded is very responsive to changes in price.

The Shoe Emporium reduces the price of its shoes by 50% and finds that the quantity demanded for its shoes more than doubles. The demand for shoes from The Shoe Emporium appears to be:

elastic.The Shoe Emporium reduces the price of its shoes by 50% and finds that the quantity demanded for its shoes more than doubles

Which of the following would most likely feature elastic demand?

fresh green beansIn general, the more substitutes for a specific good, the more elastic its demand tends to be. In the case of fresh green beans, there are close substitutes, like canned or frozen green beans, or fresh peas.

A surplus will result whenever the:

government imposes a price floor above the equilibrium price.

For a given increase in price, the greater is the elasticity of supply, the greater is the resulting

increase in quantity supplied

A government mandated price increase for doodads will:

increase the quantity of doodads supplied but decrease the quantity of doodads demanded.A government mandated price increase for doodads has to take the form of a price floor, a legal minimum above the equilibrium price as to make sure it is binding. As a result, a surplus ensues as quantity supplied is greater than quantity demanded. Because the price increases above the equilibrium price, then quantity supplied increases (an upward movement along the supply curve) and quantity demanded decreases (a downward movement along the demand curve).

The longer the time period considered, the elasticity of supply tends to:

increase.

Supply is said to be ____ when the quantity supplied is not very responsive to changes in price.

inelastic

A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The demand curve facing this firm is:

inelastic.

The current supply of Rembrandt paintings:

is perfectly inelasticBecause Rembrandt died in 1669, the quantity of his paintings is fixed. As such, the supply of Rembrandt's paintings cannot be increased. Buyers can offer one million or one hundred million dollars, and it does not matter, only a fixed amount of Rembrandt's paintings exist. So, its supply is a vertical line, perfectly inelastic.

If the demand for apples is highly elastic and the supply is highly inelastic, then if a tax is imposed on apples it will be paid:

largely by the sellers of apples.Remember, elasticity is like flexibility. The person or company with the most flexibility (elasticity) will be able to avoid most of the tax. Since the demanders (consumers) have more elasticity (flexibility) they can avoid most of the tax, and the suppliers will have to pay most of it.

Unlike its competitors, one glass producer can use its equipment to make either windows for houses or windows for cars. Other things equal, compared to its competitors, its supply curve of windows for cars would be:

more elastic than the supply curves of competitors

When demand is elastic:

price elasticity of demand is greater than one.-the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price.-consumers are relatively responsive to changes in price

If the demand is perfectly elastic, what would happen to the quantity demanded if there is a tiny increase in price?

quantity demanded will fall to zero

If the demand is perfectly inelastic, what would happen to the quantity demanded if there is a tiny increase in price?

quantity demanded will remain the sameOf course, the quantity demanded will remain the same.

Total revenue represents the amount that:

sellers receive for a good or service which is computed as PxQ.

Ceteris paribus, if an 8% increase in price leads to a 6% increase in the quantity supplied, then:

supply is inelastic.Supply is inelastic since an 8% increase in price leads to a 6% increase in the quantity supplied for a supply elasticity coefficient of 6 / 8 = 0.75.For supply to be inelastic, an 8% increase in price has to lead to a less than 8% increase in the quantity supplied as to make the supply elasticity coefficient Es < 1. That being the case, the answer is valid.

If the elasticity of demand coefficient for a good is one-sixth (in absolute terms), we know:

that for every 1% increase in quantity, there will be a 6% decrease in price.

Graphically, consumer surplus is measured by:

the area below the demand curve, but above the market price.Consumer surplus is measured by the area below the demand curve, but above the market price.

Consumer surplus is:

the difference between what consumers are willing to pay and what they are required to pay for a good.

A 25% decrease in the price of breakfast cereal leads to a 20% increase in the quantity of cereal demanded. As a result:

total revenue will decrease

A secondary effect of an action that may occur after the initial effects is known as a(n):

unintended consequence.

Demand is said to be ____ when the quantity demanded changes the same proportion as the price.

unit elastic