hw 5

A local restaurant has estimated that the price elasticity of demand for meals is equal to 0.5. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by ________and total revenue to ________.

2.5%

A group of dairy farmers is trying to raise milk prices by 10%. If the price elasticity of demand for milk is 0.5 and the price elasticity of supply for milk is 0, then by how much should farmers reduce their milk production to obtain the 10% increase?

5%

A hotel has a capacity of 100 rooms. Which of the following statements best describes the elasticity of supply for rooms at this hotel?

The elasticity of supply is zero in the short run because the short-run supply curve is vertical.

A bank increased its fees for processing personal checks from 18 cents to 24 cents per check. In a statement accompanying the announcement, the bank said that some customers who reduce the number of checks they write would see no change in their overall account fee. What is the implication of this statement for these customers?

They have a unit-elastic demand for check writing.

A perfectly inelastic demand curve for insulin would mean that the quantity demanded does not respond at all to changes in the price of insulin.

True

Which of the following statements is correct

When the price of a good increases, total revenue tends to increase due to the price effect and tends to decrease due to the sales effec

A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for:

a home entertainment system to be more price-elastic

An important determinant of the price elasticity of demand is the:

availability of substitutes.

Assume the cross-price elasticity of demand for Coke and Pepsi is equal to 3. If Pepsi raises its price by 10%, then the quantity of:

coke demanded will increase by 30%

If the price elasticity of demand (calculated using the mid-point method) for -eBooks is 2.5, and the price of e-Books rises from $18 to $22, then the quantity demanded will:

decrease by 50%

what happens to the elasticity of demand as we move down to the right along a stright line demand curve?

demand becomes relatively less elastic

The price elasticity of demand measures the responsiveness of the quantity:

demand to changes in price

A price ceiling will cause a larger shortage when demand is ________ and supply is ________.

elastic; elastic

A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student out of about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is:

highly inelastic

Regardless of the price of ice cream, Charlie spends $5 a week on ice cream. What can we conclude about Charlie's demand for ice cream?

his price elasticity of demand for ice cream is equal to 1

What do you have to know in order to calculate the price elasticity of supply

how much of the good will be offered for sale at each of two different prices

An important determinant of the price elasticity of demand is the:

importance of the good in household budgets

You land a marketing job with Canon after graduation- in the digital camera division. After introducing a new digital camera, you estimate that the price-elasticity of demand for the camera equals 2 and the income-elasticity is equal to 0.5. Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Using this information, you would conclude that the product is income-:

inelastic. During a period of economic growth the demand curve for the camera will shift outward by a smaller amount than an income elastic good.

The demand for a good becomes relatively more elastic as:

substitutes for the good become more available.

You land a marketing job with Canon after graduation in the digital camera division. After introducing a new digital camera, you estimate that the price elasticity of demand for cameras equals 2 and the income elasticity is equal to 0.5. Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Using this information, you would conclude:

the product demand is elastic an if your firm (Canon) decreases the price of its new camera, total revenues will increase.

If the price elasticity of demand for an annual magazine subscription is 1.6 in the range between $26 and $30, what happens in the market when the subscription price rises from $26 to $30?

there will be a decrease in the total revenue the magazine collects on its subscriptions

An important determinant of the price elasticity of demand is the: (TP)

time period

A demand curve that is perfectly inelastic is:

vertical.

The sign (positive or negative) on the income elasticity of demand tells us:

whether the good is normal or inferior

The sign (negative or positive) on the cross-price elasticity of demand for wine and chocolate tells us:

whether wine and chocolate are substitutes or complements.