Econ Chapter 5 Review
Income elasticity of demand
% change in quantity demanded / % change in income
A supermarket reduces the price of oranges from 50 cents each to 30 cents each. The weekly sales increases from 8,000 to 10,000. The value of price elasticity of demand =
.63
Suppose that a pizza vender at a basketball game can sell 3,000 slices of pizza per night at a price of $3 per slice. If the vender raises the price to $4 per slice, the number of slices sold falls to 2,000. Based on this information, the price elasticity demand = _
1
A manufacturer reduces the price of its digital cameras by 20% and, as a result, the volume of sales rises by 30%. Therefore, the value of price elasticity of demand = _
1.5
An HD flat screen TV sold 500,000 units at $1000 each last year. It is known that its price elasticity of demand is 2.0 (calculated at the current price and quantity). What would sales by this year if there are no other changes affecting demand and the price per unit is lowered to $950? _ units
550,000 units
When the price of a product is increased 10%, the quantity demanded decreases by 15%. In This range of prices, demand for this product is
Elastic
perfect elastic
Horizontal Demand Curve - price elasticity is infinite, meaning an infinite response to a change in price
Perfectly Elastic Supply
Horizontal Supply Curve - supply for which the price elasticity is infinite, indicating an infinite response of quantity supplied to a change in price
In 2009, some tobacco companies in the US wanted to raise prices but a spokesman said the tobacco industry was no longer in a position where it could increase producer revenues by raising prices. What might be concluded from this statement?
The price elasticity of demand for tobacco is likely to be greater than 1
Elasticity is a unit-free measure
True
perfect inelastic
Vertical Demand Curve - price elasticity is zero, meaning no response to a change in price (Ex. Insulin)
Perfectly Inelastic Supply
Vertical Supply Curve - supply for which the price elasticity is zero, indicating no response of quantity supplied to a change in price
Elasticity of Demand
a measure of the sensitivity of the quantity demanded of a good to the price of the good
The price elasticity of demand for Apple iPhone smartphones is likely to increase when
a new competitor enters the mobile phone market
Short-run
a period of time before people have changed their habits
Long-run
a period of time long enough for people to change habits
A recent analysis of the market for broadband deals found that the demand was more elastic in the long run rather than the short run. The price elasticity of demand will tend to increase the longer the time period after a price change because
consumers are better able to find substitutes
E = 1
elastic
E = 2.6
elastic
High degree of substitutability
elastic
Long-Run Elasticity
elastic
Quantity demanded is very sensitive to a change in price
elastic
Revenue decreases with an increase in price
elastic
Takes only a small change in price to change quantity demanded
elastic
Slope is a unit-free measure
false
Elastic demand
goods for which the price elasticity is greater than 1 (or equal to) (Foreign Travel Example)
inelastic demand
goods for which the price elasticity is less than 1 (Eggs Example)
If the demand for a product is said to be elastic, this is demand for which price elasticity is _
greater than 1
Elastic Value is
greater than or equal to 1
E = 0.4
inelastic
If the total revenue from the sales of a good rises by 10% when its price is increased by 10%, then the demand for the good must be _
inelastic
Little Ticket item
inelastic
Permanent Price Change
inelastic
Quantity demanded is NOT very sensitive to a change in price
inelastic
Revenue increases with an increase in price
inelastic
Takes a large price change to change quantity demanded
inelastic
Perfectly Elastic Value is
infinitely
Product X has a price elasticity of demand of 0.25 while Product Y has a price elasticity of demand of 1.5. A likely explanation of these values is that compared to product Y, product X
is purchased more out of habit
Low Elasticity
large increase in price is needed to bring quantity demanded down to a lower quantity supplied
Inelastic Value is
less than 1
High Elasticity
only a small increase in price is needed to bring quantity demanded down to a lower quantity supplied
Steep curve
quantity demanded is NOT very sensitive to price (low elasticity)
Elasticity of demand is the measure of how sensitive...
quantity demanded is to price
Flat curve
quantity demanded is very sensitive to price (high elasticity)
Price elasticity of demand measures the percentage change in _ caused by a percentage change in _
quantity demanded, price
The demand for Honey Nut Loops cereal is more elastic then the demand for cereals as a whole. This is best explained by the fact that
there are more substitutes for Honey Nut Loops than for cereals as a whole
Perfectly Inelastic Value is
zero
