Economics Homework 4

Refer to Figure 6-4. The inelastic segment of the demand curve

lies below the midpoint of the curve.

Refer to Figure 6-4. The absolute value of the price elasticity of demand at the midpoint of the demand curve is

one

Total revenue equals

price per unit times quantity sold

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

1.62

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

It is elastic at high prices and inelastic at low prices

In December 2014, the average price of gasoline in the United States was $2.50 per gallon and consumers bought 7 percent more gasoline than they had during April 2014, when the average price was $3.60 per gallon. Based on these numbers, what was the price elasticity of demand for gasoline from April 2014 to December 2014?

-0.19

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

A wide variety of substitutes are available for the good.

Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee and Peet's Coffee.

Peet's Coffee, coffee, hot beverages

Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?

Sales revenue decreased

Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free-market equilibrium price in the market for milk?

Sales revenue rises

Refer to Table 6-2. Assume that an economist has estimated the price elasticity of demand values in the table above. Use the data in the table to select the correct statement.

The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be

Refer to Figure 6-4. Which of the following statements about price elasticity of demand is true?

The elastic portion of a straight-line, downward-sloping demand curve corresponds to the segment above the midpoint

Which of the following statements about price elasticity of demand is false?

The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope.

A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is

elastic

If the absolute value of the price elasticity of demand for DVD movies is 0.8 then the elasticity of demand of the DVD for the movie The Hangover should be

greater than 0.8 in absolute value.

If a firm raised its price and discovered that its total revenue fell, then the demand for its product is

relatively elastic

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is

relatively inelastic

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

remain constant

When demand is unit elastic, a change in price causes total revenue to stay the same because

the percentage change in quantity demanded exactly offsets the percentage change in price.

Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________.

vertical; downward sloping

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

will decrease by 45 percent.