Econ 1 Module 4 Quiz

A 10% decrease in the price of potato chips leads to a 30% increase in the quantity of soda demanded. It appears that

cross-price elasticity of demand for soda is -3

Using the midpoints method, calculate the price elasticity of demand of Good Z using the following information: When the price of good Z is $10, the quantity demanded of good Z is 85 units. When the price of good Z rises to $15, the quantity demanded of good Z falls to 60 units.

The price elasticity of demand for good Z = 0.52.

A person who takes life-saving prescription drugs most likely has a(n) ________demand for that drug. Therefore an increase in the price of the drug will result in ________ total revenue for the drug company.

inelastic; increased

When income increases and the demand for a good increases, the good is considered a

normal good

If the elasticity of demand for a company's product is estimated to be 1.72, what would you advise the company to do if their objective is to decrease revenue?

raise the price

Analyze the following diagram: a- horizontal line b- downward sloping line c- sharp downward sloping line d- vertical line intersection of all lines in center Demand "C" represents a demand curve that is

relatively inelastic

Elastic supply occurs if the change in quantity supplied is ________ to a change in price.

relatively responsive

The price elasticity of demand measures the

responsiveness of quantity demanded to a change in price.

Determining the price elasticity of demand involves all of the following factors, but NOT

slope of the supply curve

The size of the change in the quantity demanded of a good or service due to change in its price is measured by the elasticity of demand. When the percentage change in the quantity demanded for a good or service is less than the percentage change in price, the demand for that good or service is ________ and the price elasticity coefficient is ________.

inelastic; less than 1

When the demand for a good or service does NOT vary when there is a change in price, the good is ________?

perfectly inelastic

Suppose the price of apples increase by 20%, resulting in consumers to purchase 15% more pears. Given this information, it appears that

cross-price elasticity of pears is 0.75

Given that total revenue = price x quantity, what will happen to total revenue if price increases when demand is elastic?

decrease

In a market with relatively inelastic demand, if the supply curve shifts due to a fall in production costs, the equilibrium price will ________ by ________ than equilibrium quantity.

decrease; more

Supply is said to be ________ when the quantity supplied is very responsive to changes in price.

elastic

Elasticity refers to

how responsive one variable is to changes in another

Elasticity measures the behavioral response of economic agents in a given situation. Which question is likely to be answered using elasticity?

If a restaurant puts their pizza on sale, will the additional number of pizzas sold offset the discount on each item? Will their sales revenues for pizza go up or down?

Elasticity measures the behavioral response of economic agents in a given situation. Which of the following questions is likely to be answered using elasticity?

If a business raises its prices, will that have a large or small impact on demand?

You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand, several years after the price change, will be about −1.5. Select the statement that best describes the results of raising the fare in the long run.

Total revenue falls, since demand changes and becomes price elastic.

If wage increases by 10%, a(n) ________ worker is likely to supply 7% more labor because elasticity of labor supply is assumed to be ________.

adult; inelastic