homework 5

When the local used bookstore prices economics books at $15 each, it generally sells 70 books per month. If it lowers the price to $7, sales increase to 90 books per month. Given this information, we know that the price elasticity of demand for economics books is about

0.34, and an increase in price from $7 to $15 results in an increase in total revenue.

If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase is about

1.20%

Which of the following statements is valid when supply is perfectly elastic at a price of $4?

The elasticity of supply approaches infinity.

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The good is a luxury.

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

a 5 percent increase in the price of the good

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of

a necessity versus a luxury in determining the price elasticity of demand.

A perfectly elastic demand implies that

any rise in price above that represented by the demand curve will result in a quantity demanded of zero.

A decrease in supply will cause the smallest increase in price when

both supply and demand are elastic.

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

elastic and equal to 6.

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.

The case of perfectly elastic demand is illustrated by a demand curve that is

horizontal.

The difference between slope and elasticity is that slope

is a ratio of two changes, and elasticity is a ratio of two percentage changes.

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's

is positive, and Bethany's is negative.

When demand is inelastic, the price elasticity of demand is

less than 1, and price and total revenue will move in the same direction.

When studying how some event or policy affects a market, elasticity provides information on the

magnitude of the effect on the market.

When consumers face rising gasoline prices, they typically

reduce their quantity demanded more in the long run than in the short run.

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

substitutes.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand.

Which of the following is not a determinant of the price elasticity of demand for a good?

the steepness or flatness of the supply curve for the good