Econ Test 2 Review

If the price elasticity of demand for a good is -1.5, then a 3 percent decrease in price results in a

4.5 percent increase in the quantity demanded.

As price falls from Pa to Pb, which demand curve represents the most elastic demand?

D1

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

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.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

For a good that is a necessity,

demand tends to be inelastic

An increase in price causes an increase in total revenue when demand is

elastic

The greater the price elasticity of demand, the

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

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions.

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers.

Goods with many close substitutes tend to have

more elastic demands

If a change in the price of a good results in no change in total revenue, then

the demand for the good must be unit elastic.

When demand is perfectly inelastic, the demand curve will be

vertical, because buyers purchase the same amount as before whenever the price rises or falls.