Eco Ch6

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

0.5

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

1.62

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?

It falls.

Which of the following statements is true?

When a firm lowers its price its total revenue may either increase or decrease.

If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is

a luxury.

A demand curve that is horizontal indicates that the commodity

has a large number of substitutes.

Income elasticity measures

how a good's quantity demanded responds to change in buyers' incomes.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price.

The demand for gasoline in the short run is

inelastic because there are no good substitutes for gasoline.

If a good has a negative income elasticity of demand, this indicates that the good is

inferior.

The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.

less elastic than

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one.

The inelastic segment of the demand curve

lies below the midpoint of the curve

The cross-price elasticity of demand measures the

percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised her price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is

perfectly inelastic.

Total revenue equals

price per unit times quantity sold.

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is

relatively inelastic.

When there few close substitutes available for a good, demand tends to be

relatively inelastic.

In general, a "big ticket item" such as a house or new car will

tend to have a more elastic demand than a lower priced good.

A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ represents inelastic demand.

vertical; downward sloping

When demand is elastic, a fall in price causes total revenue to rise because

the increase in quantity sold is large enough to offset the lower price.

The income elasticity of demand measures

the responsiveness of quantity demanded to changes in income.

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that

the two brands of detergent are close substitutes.

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is

unit-elastic.

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

will decrease by 45 percent.

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is

zero.