Econ Ch 5
Which of the following is used to calculate income elasticity of demand?
% change in quantity demanded/%change in income
Which of the following is used to calculate cross-price elasticity of demand?
% change in quantity of Y demanded/ % change of price of X
Which of the following is used to calculate elasticity of supply?
% change in quantity supplied/%change in price
The quantity of peanuts demanded increases from 6 pounds to 9 pounds when the price of peanuts decreases from $4 per pound to $3 per pound. In this price range and using the midpoint formula, the price elasticity of demand for peanuts is
-1.4.
The quantity of peanuts demanded increases from 6 pounds to 9 pounds when the price of peanuts decreases from $4 per pound to $3 per pound. The price elasticity of demand for peanuts is
-2.0.
The quantity of peanuts demanded increases from 6 pounds to 9 pounds when the price of peanuts decreases from $4 per pound to $3 per pound. The percentage change in the price of peanuts is
-25%.
For the following statement, state the relevant elasticity and state what its value should be (negative, positive, greater than one, zero, and so on). The demand for hot dog buns rises when hot dog prices fall
Cross-price elasticity of demand is negative, since the items are complements (could be large or small)
For the following scenario, decide whether you agree or disagree and explain your answer. Every year Christmas tree vendors bring tens of thousands of trees from the forests of New England to New York City and Boston. During the last two years, the market has been very competitive; as a result, price has fallen by 10 percent. If the price elasticity of demand was minus−1.3, vendors would lose revenues altogether as a result of the price decline.
Disagree: When price decreases and demand is relatively elastic, total revenue will rise.
Explain whether demand is likely to be elastic or inelastic for Big Macs.
Elastic, since many other fast food items could be considered subs
Why is demand likely to become more elastic, or responsive, in the long run?
In the long run, households make adjustments over time and producers develop substitute goods.
If total revenue increases as price decreases, demand is
elastic
In general, luxury items tend to have inelastic demands.
false
In terms of absolute value, elasticity values ________ as price decreases along a downward-sloping demand curve.
get smaller
The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will
increase the quantity of education demanded by 14%.
If total revenue increases as price increases, demand is
inelastic
An increase in demand caused no change in the equilibrium price. Thus, supply must be
perfectly elastic.
For a demand curve to be more inelastic:
the item should represent a small portion of an individual's total budget.
Demand has unitary elasticity if:
the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of 1).
Price elasticity of demand is defined as:
the ratio of the percentage of change in quantity demanded to the percentage of change in price.
For a demand curve to be more elastic:
there should be an availability of substitutes
The quantity of peanuts demanded increases from 6 pounds to 9 pounds when the price of peanuts decreases from $4 per pound to $3 per pound. The percentage change in the quantity of peanuts demanded is
50%.
Suppose price increases and demand is unitary elastic. What happens to total revenue?
Total revenue will not change
In general, the more of your income a product consumes, the more elastic is its demand.
True
The demand for gasoline is likely to be more inelastic than the demand for sushi.
True
The more substitutes that are available for a product, the more elastic is its demand.
True
Every point along a linear demand curve has the same slope, and therefore has the same elasticity value.
False
Studies have fixed the short-run price elasticity of demand for gasoline at the pump at minus−0.20. Suppose that international hostilities lead to a sudden cut-off of crude oil supplies. As a result, U.S. supplies of refined gasoline drop 1515 percent. If gasoline were selling for $1.501.50 per gallon before the cut-off, what new price would you expect to see in the coming months? (Hint: Use the absolute value of the gasoline elasticity coefficient and treat all values as positive.) -The price of gasoline will be $ 2.632.63 per gallon. (Round your response to two decimal places.) Suppose that the government imposes a price ceiling on gas at $1.001.00 per gallon. How would the relationship between consumers and gas station owners change? It would cause a shortage of gasoline.
answer in question
If income is rising and income elasticity of demand for a particular good is negative, then demand for the good is:
decreasing, and it is an inferior good
For perfectly price inelastic supply
demand determines price solely.
