homework 3

The price elasticity of demand measures

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

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

increase total revenue of donuts sellers.

If the price of milk rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

0.67, and an increase in price will result in an increase in total revenue for good A.

A manufacturer produces 350 units when the market price is $10 per unit and produces 460 units when the market price is $14 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

0.81

For which of the following goods is the income elasticity of demand likely lowest?

Clothing

Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.

Cadence says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Cadence's

demand for cigarettes is perfectly inelastic.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would

increase by 16.80 percent.

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. Using the midpoint method, we can conclude that for Heather, macaroni

is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both price and total revenues.

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes

For a good that is a luxury, demand

tends to be elastic

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good.

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

the same price and higher total revenue from marijuana sales.