ECON 494 - Ch 4

Which of the following is the formula for the price elasticity of demand?

(P / Q)(1 / slope)

If a 12 percent decrease income leads to a 3 percent decrease in the quantity of pedicures demanded, then the income elasticity of demand for pedicures is:

0.25 3 / 12 = 0.25

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to

0.5

If the quantity demanded goes down by 3 percent when the price rises by 6 percent, then the price elasticity of demand is:

0.5

If the quantity supplied decreases by 2 percent in response to a 4 percent drop in prices, then the price elasticity of supply is:

0.5 2 / 4 = 0.5

If the quantity of peanuts demanded increases by 6 percent in response to a 3 percent increase in the price of almonds, then the cross-price elasticity of demand for peanuts with respect to the price of almonds is:

2 6 / 3 = 2

If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a

3 percent decrease in the quantity of pineapples demanded.

Total expenditure equals:

P×Q total revenue

If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are

complements

If the cross-price elasticity of demand for ice cream with respect to the price of apple pie is negative, then the two goods are

complements

If the cross-price elasticity of demand for yogurt with respect to the price of granola is negative, then the two goods are

complements

If the demand for economy-class airline tickets is elastic with respect to price, then if the price of economy-class airline tickets increases, then total expenditure will _____.

decrease

If the price elasticity of demand is less than 1 and price decreases, then total expenditure will

decrease

If the price of sofas goes up by 10 percent and the quantity of sofas demanded falls by 15 percent, then the total expenditure on sofas will

decrease Reason: If the percentage increase in price is less than the percentage decrease in quantity demanded, then total expenditure will decrease.

If the cross-price elasticity of demand for bike helmets with respect to the price of bikes is -0.25, then if the price of bikes increases by 10 percent, the quantity of bike helmets demanded will

decrease by 2.5 percent

If the supply of nail polish shifts to the left, then total expenditure on nail polish will

decrease if the price elasticity of demand for nail polish is greater than one

If the price elasticity of demand for restaurant meals is 1.63, then the demand for restaurant meals is _____.

elastic

If the price elasticity of demand for beer is 1.19, and the price of beer goes up by 1 percent, then the quantity of beer demanded will _____.

go down by 1.19 percent

If the price elasticity of demand for electricity is 1.20, then if the price of electricity goes up by 10 percent, the quantity of electricity demanded will

go down by 12 percent Reason: 1.2 * 10

If the price elasticity of supply for cotton is 1, then if the price of cotton goes down by 5 percent, the quantity of cotton supplied will

go down by 5 percent

Given that there are many different kinds of cereal that people can buy, the price elasticity of demand for any particular brand of cereal is likely to be relatively _____.

high Reason: Demand will tend to be more elastic with respect to price for products for which close substitutes are readily available.

If Sal's Pizzeria uses tomato sauce, dough and cheese to make both pizza and calzones, then the price elasticity of supply for pizza at Sal's is likely to be relatively _____.

high Reason: In general, the easier it is to shift inputs away from the production of one good towards another, the more responsive will be the quantity supplied to a change in price.

Low-income families spend a greater share of their budget on electricity than do high-income families. Thus, we would expect the price elasticity of demand for electricity to be _____ for low-income families than for high-income families.

higher Reason: All else equal, the larger the share of a consumer's budget spent on a good, the higher will be the price elasticity of demand for that good.

Both the supply and the demand for oil are relatively inelastic in the short-run. Thus, we would expect oil prices to be ______.

highly voliatile

If the demand for economy-class airline tickets is elastic with respect to price, then if the price of economy-class airline tickets decreases, then total expenditure will _____.

increase

If the price elasticity of demand for shoes is 0.70, then the demand for shoes is _____.

inelastic Reason: If the elasticity of demand is less than 1, then demand is inelastic with respect to price.

If demand is perfectly elastic with respect to price, then the price elasticity of demand is _____.

infinite

When the price elasticity of demand is less than 1, changes in price and changes in total expenditure

move in the same direction

If ground beef is an inferior good, then the income elasticity of demand for ground beef will be

negative

Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is

relatively inelastic.

If the cross-price elasticity of demand for baseball caps with respect to the price of sunglasses is positive, then the two goods are

substitutes

The income elasticity of demand for guitars is

the percentage by which the quantity of guitars demanded changes in response to a 1 percent change in income

The income elasticity of demand for iPhones is

the percentage by which the quantity of iPhones demanded changes in response to a 1 percent change in income

Price × quantity equals ________.

total revenue total expenditure

If the price elasticity of demand for wine is 1.00, then the demand for wine is _____.

unit elastic

Given that there are only so many operations the world's top brain surgeon can perform every year, the price elasticity of supply for his or her services is likely to be

very low

If quantity demanded goes up by 10 percent when price falls by 2 percent, then the price elasticity of demand is:

5 Reason: The price elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in price (=10÷2).

If the price elasticity of supply for tobacco is 5, then if the price of tobacco goes down by 1 percent, the quantity of tobacco supplied will

go down by 5 percent

If the price elasticity of demand for milk is 0.4, then if the price of milk goes up by 20 percent, the quantity of milk demanded will

go down by 8 percent. 0.4×20=8.

If the price elasticity of supply for gasoline is 1.6, then if the price of gas goes up by 1 percent, the quantity of gasoline supplied will

go up by 1.6 percent

If the price elasticity of supply for dishwashers is 0.2, then if the price of dishwashers goes up by 8 percent, the quantity of dishwashers supplied will

go up by 1.6 percent 0.2 * 8 = 1.6

If the price elasticity of demand for paper is 0.90, then if the price of paper goes down by 10 percent, the quantity of paper demanded will

go up by 9 percent 0.9 * 10 = 9

Changes in price and changes in total expenditure move in the opposite direction when the price elasticity of demand is

greater than 1

If the price of lawnmowers goes up by 9 percent and the quantity of lawnmowers demanded falls by 5 percent, then the total expenditure on lawnmowers will

increase

If the demand for first-class airline tickets is inelastic with respect to price, then if the price of first-class airline tickets increases, then total expenditure will _____.

increase Reason: If demand is inelastic with respect to price, total expenditure will increase in response to a price increase.

Suppose that there is only one small clothing store in the remote village of Green Acres, and until recently the townspeople bought their shirts there. As more people in Green Acres become connected to the Internet, the price elasticity of demand for shirts at the Green Acres store will

increase because the Internet offers more substitutes.

Suppose a local politician proposes that the price of lottery tickets be cut in half in order to reduce the total amount that people spend on lottery tickets. This plan will

only be effective if the demand for lottery tickets is inelastic with respect to price

If steak is a normal good, then the income elasticity of demand for steak will be

positive

The elasticity of supply along any straight-line supply curve that passes through the origin is

always equal to one

If the income elasticity of demand for lottery tickets is negative, then lottery tickets are

an inferior good

If the owners of a local clothing boutique increase the price of their merchandise, then their total revenue

could fall since fewer people may be willing to shop there

The elasticity of supply is:

the percentage change in quantity supplied in response to a 1 percent change in price

The cross-price elasticity of demand is

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

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is

elastic

The percentage change in quantity supplied that results from a 1 percent change in price is the

elasticity of supply

The price elasticity of demand for water will be _____ in the long run than in the short run.

higher Reason: Over time people will figure out ways to use less water (for example, by installing low-flow shower heads), so the elasticity of demand for water will be higher in the long run than in the short run.

If the cross-price elasticity of demand for motorcycles with respect to the price of cars is 0.05, then if the price of cars increases by 10 percent, the, the quantity of motorcycles demanded will

increase by 0.5 percent

If an early frost damages this year's orange crop, causing the supply curve for oranges to shift to the left, then total revenue from the sale of oranges will

increase if the demand for oranges is inelastic with respect to price

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game

is perfectly inelastic.

A consumer's weekly demand for gasoline is likely to be _____ price elastic than his or her yearly demand for gasoline.

less Reason: The price elasticity of demand will be lower in the short run than in the long run.

The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is

perfectly inelastic.

You notice that the price of your favorite candy bar has been relatively stable over time. A possible explanation for this is that both supply and demand are _____.

price elastic

The percentage change in quantity demanded that results from a 1 percent change in price is the

price elasticity of demand

If the demand for electricity is inelastic, and the local utility wants to increase its total revenue, it should _______ its price.

raise

The income elasticity of demand for potatoes is

the percentage by which the quantity of potatoes demanded changes in response to a 1 percent change in income

The price elasticity of demand is

the percentage change in quantity demanded that results from a 1 percent change in price

If a 2 percent increase income leads to a 4 percent increase in the quantity of gasoline demanded, then the income elasticity of demand for gasoline is:

2 4 / 2 = 2

Given that there are only so many people who can stand at the top of the Eiffel tower at any point in time, the price elasticity of supply for tickets to the Eiffel tower is likely to be

very low

Given that it's costly to build new oil wells to drill for oil, the price elasticity of supply for crude oil is likely to be

very low in the short run.

If the income elasticity of demand for hamburgers is -0.6, then a 1 percent increase income will lead to a _____ in the quantity of hamburgers demanded.

0.6 percent decrease -0.6 * 1 = -0.6

If there's an increase in the supply of bottled water (a rightward shift), then total revenue from the sale of bottled water will ______.

decrease if the price elasticity of demand for bottled water less than one Reason: If the supply of bottled water increases and the price elasticity of demand is less than one, then the percentage decrease in price will be larger than the percentage increase in quantity demanded, leading total revenue to decrease.