Econ 201 Exam 3 (6)

A local Krispy Kreme doughnut shop reduced its prices by 10 percent, and as a result, the quantity of doughnuts sold increased by 25 percent.ÊOver this range, the absolute value of the price elasticity of demand was

2.5

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

2.5

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is Ð .25, by how much would you have to raise the price of water?

40 percent

Why do economists use the concept of elasticity in addition to measurement of the slope of the demand curve?

Elasticities are independent of the units of measure.

If admission to a Beyonce concert in a football stadium is lowered from $60 to $40, and attendance increases from 25,000 to 35,000, the price elasticity of demand for attending the concert is approximately

-0.83

A recent increase in the supply of oranges caused the price to drop from $5 to $3 per bushel, and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is

-1.71

If a 20 percent reduction in the price of airline tickets between Chicago and New York leads to a 50 percent increase in the quantity of tickets purchased, the price elasticity of demand for the tickets is

-2.50

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

1.25

When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

1.80

The demand for which one of the following goods is most likely to be quite inelastic?

a defense lawyer

When economists say the demand for a good is highly inelastic, they mean that

a large (percentage) change in the price of a good will result in only a small (percentage) change in the quantity demanded.

If you compared the short-run demand and long-run demand for education at your WVU, you would almost certainly find that

a tuition increase would reduce enrollment more in the long run than in the short run.

A good that takes up a very large percentage of the consumer's budget will tend to have

an elastic demand.

Compared to the long run, consumers typically ___ to price changes in the short run.

are less demand sensitive

The price elasticity of demand for a commodity is determined primarily by the

attractiveness of the substitutes for the good.

Of the following goods, which is most likely to have the lowest (most inelastic) elasticity of demand?

coffee

If Pizza Al's reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand for the firm's pizza was

elastic

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

elastic

Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is

elastic

In heavily Catholic cities like Cincinnati, which of the following goods is likely to have more inelastic demand compared to cities with few Catholics

fish

The demand for which one of the following will be most inelastic?

food products

The demand for which one of the following is most likely to be highly elastic?

fresh green spinach

Suppose the WVU athletic department wanted to increase revenues by decreasing ticket prices to football games. This would make sense only if the price elasticity of demand for football games was (in absolute value)

greater than 1

The greater the price elasticity of demand, the

greater the responsiveness of quantity demanded to a change in price.

The demand for which one of the following is most likely to be highly inelastic?

health care services

The price elasticity of demand for a product tends to be large (more elastic) when

people spend a large share of their income on the product.

The figure above depicts a demand curve with a price elasticity that is Quantity v price, demand straight line up

perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good.

For which one of the following goods would you expect the demand to be most inelastic?

tacos

Julia knows the price elasticity of movie rentals is 3. She knows, therefore, that if she raises her price from $2 to $2.50, her rentals will drop by approximately

66 percent

For which one of the following goods would you expect the demand to be most elastic?

Chevy automobiles

Which of the following is true regarding the price elasticity of demand?

Demand is generally more elastic in the long run than in the short run.,, Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices).,, A demand curve that is flatter (has a less steep slope) is relatively more elastic than a demand curve that has a steeper slope.

Elaine, a small grocer, is planning to cut certain prices to increase her sales revenues. What will be the likely result of a price decrease for matches, a good for which the demand is inelastic, and a price decrease for fresh green tomatoes, an item for which consumer demand is elastic?

The total revenue derived from matches will decline, but total revenues derived from tomatoes will increase.

If consumers would be willing to purchase the same quantity of a good no matter what its price was, the demand curve would

be a vertical line,Êindicating thatÊdemand is perfectly inelastic.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

buyers tend to be much more sensitive to a change in price when given more time to react.

If the demand for a good is elastic, then total revenue

increase as price decreases

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to

increase tuition, which would generate more revenue.

If Pizza Al's increases its prices by 10 percent, and as a result, its sales revenue increases by 3 percent, the price elasticity of demand for the services offered by the restaurant must be

inelastic

Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is

inelastic

If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the Pepsi-Cola Company could increase its total revenue by

lowering price

A successful advertising campaign would likely

reduce price elasticity of demand by informing consumers of the availability of substitutes.

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as

relatively elastic

If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be

relatively inelastic

The price elasticity of demand for gasoline measures the

responsiveness of customers to changes in the price of gasoline

Which one of the following goods would likely have the most inelastic demand?

salt

The demand curve for a good is very unlikely to be perfectly vertical because

scarcity and limited income restrict the ability of consumers to afford goods as they become very expensive. and as the price of a good rises to high enough levels, the incentive for other suppliers to invent new substitutes for the good increases.

For which one of the following goods would you expect the demand to be most elastic?

sheetz gasoline and BP gasoline

The more broadly a good is defined,

the fewer substitutes it has so the less elastic is its demand.

Demand will be more inelastic,

the higher the price of the good.

Demand will be more elastic,

the larger the number of good substitutes.

Along the inelastic portion of a demand curve,

the percentage change in price will be more than the percentage change in quantity demanded.