Micro: Chapter 5 practice problems

Total revenue when the price is P1 is represented by the area(s) a. B+D. b. A+B. c. C+D d. D.

a. B + D it is the area underneath P1 and in between Q1

unit elasticity

elasticity is exactly 1, quantity moves the same amount proportionately as price

Broadly classified goods such as foods = Narrowly classified goods such as ice cream =

= inelastic because not much availability options to substitute for food = elastic because can switch to fro yo, easier to find close substitutes

Total revenue when the price is P2 is represented by the area(s) a. B+D b. A+B c. C+D d. D

B. A + B

Part A. Suppose that when the price of corduroy pants decreases from 70 to 60, the quantity demanded on the market increases from 2,800 to 3,000. The percentage change in quantity is: Part B. The price elasticity of demand is a. 0.45 b. 2.23 c. -0.45 d. -2.23

Part A = difference/ midpoint 3000-2800/ (3000+2800/2) 200/2900 = 0.068 = 6.8% Part B a. 0.45 (% change in quantity demanded/ % change in price) Qd= 3000-2800/ midpoint (3000+ 2800/2) 200/2900 = 0.0689 = 6.8% P = 70 - 60/ (70 + 60/2) = 10/65 = 0.15 = 15% Price elasticity of demand = 6.8%/ 15% = 0.45%

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.58. b. 1.83. c. 2. d. 10.

a. 0.58 Qd = 120 - 100/ (120 +100/2)= 20/110 = 0.05 = 5% Price = 5 - 7/ (5+7/2) = 2/6 = 0.33 = 33% Price elasticity of demand = 5%/33% = 0.151515

The quantity of a good demanded rises from 1000 to 1500 when the price falls from 1.50 to 1.00. The price elasticity of demand is: a. 1.0 b. 0.16 c. 2.5 d. 4.00

a. 1.0 Price elasticity of demand = % change in Qd/ % change in Price Qd = 1500-1000/ (1500+1000/2) 500/1250 = 0.4 = 40% P = 1.50 - 1.00/ (1.50+1.00/2) .50/1.25 = 0.4 = 40% Price elasticity of demand = 40%/40% = 1 Demand is elastic

If the price elasticity of demand for tuna is 0.7, then a 1.5% increase in the price of tuna will decrease the quantity demanded of tuna by a. 1.05%, and tuna sellers' total revenue will increase as a result. b. 1.05%, and tuna sellers' total revenue will decrease as a result. c. 2.14%, and tuna sellers' total revenue will increase as a result. d. 2.14%, and tuna sellers' total revenue will decrease as a result.

a. 1.05%, and tuna sellers' total revenue will increase as a result. 0.7 X 1.5% = 0.0105 0.7 = inelastic = price and revenue move in same direction

When the price of used CDs is $4, Daphne buys five per month. When the price is $3, she buys nine per month. Daphne's demand for used CDs is a. elastic, and her demand curve would be relatively flat. b. elastic, and her demand curve would be relatively steep. c. inelastic, and her demand curve would be relatively flat. d. inelastic, and her demand curve would be relatively steep.

a. elastic, and her demand curve would be relatively flat % change in demand = 9-5/ (9+5/2) = 4/ 7 = 0.57 = 57% % change in price = 4-3/(4+3/2) 1/3.5 = 0.28 = 28% 57%/28% = 2.03 = elastic flatter demand curve = higher the price elasticity of demand steep = lower elasticity

If the price of milk rises, when is the price elasticity of demand likely to be the lowest? a. Immediately after the price increase b. One month after the price increase c. Three months after the price increase d. One year after the price increase

a. immediately after the price increase supply is more elastic in long term, therefore i am looking for the most short term answer

The price elasticity of demand for eggs a. is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs. b. will be lower if there is a new invention that is a close substitute for eggs. c. will be higher if consumers consider eggs to be a necessity. d. All of the above are correct.

a. is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs Necessity = inelastic = less than 1

Referring to the figure above and using the midpoint method, the price elasticity of demand between point B and point C is a. 0.5 b. 0.75 c. 1.0 d. 1.3

b. 0.75 Point B = price is 12, quantity is 300 Point C = price is 6, quantity is 500 Qd = 500-300/ (500+300/2)= 200/400= 0.5 = 5% P= 12-6/ (12+6/2) = 6/9 = 0.66 = 66% 5%/66% = 0.075

If the demand for agricultural products is inelastic: a. as the prices decrease, the revenues earned by producers increase b. as the prices decrease, the revenues earned by producers decrease; c. rising prices do not lead to differentiation in producers' incomes d. the percentage decrease in prices is lower than the percentage increase in demand.

b. as the price decreases, the revenues earned by producers decrease when demand is inelastic price and total revenue move in same direction.

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 a. buyers tend to be much less sensitive to a change in price when given more time to react. b. buyers tend to be much more sensitive to a change in price when given more time to react. c. buyers will have substantially more income over a ten-year period. d. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

b. buyers tend to be much more sensitive to a change in price when given more time to react.

Which of the following is not a determinant of the price elasticity of demand for a good? a. the time horizon b. the steepness or flatness of the supply curve for the good c. the definition of the market for the good d. the availability of substitutes for the good

b. the steepness or flatness of the supply curve for the good

Which of the following is likely to have the most price inelastic demand? a. mint-flavored toothpaste b. Toothpaste c. Colgate mint-flavored toothpaste d. a generic mint-flavored toothpaste

b. toothpaste -most general option no "luxuries" added Most necessary because "inelastic"

If the price elasticity of demand for a good is 0.25 (in absolute value), then a 20 percent decrease in price results in a a. 0.0125 percent increase in the quantity demanded. b. 4 percent increase in the quantity demanded. c. 5 percent increase in the quantity demanded. d. 80 percent increase in the quantity demanded.

c. 5 percent increase in quantity demanded 0.25 x 20% = 0.05 = 5%

Clear Window Manufacturer wants to increase the quantity of windows it sells by 10 percent. If the price elasticity of demand is 5 the manufacturer must: a. Increase price by 2% b. Increase price by 1.5% c. Decrease price by 2% d. Decrease price by 1.5%

c. decrease price by 2% elastic supply curve is elastic = any change in price is less than any change in quantity. so price would decrease

Demand is said to be inelastic if a. buyers respond substantially to changes in the price of the good b. demand shifts only slightly when the price of the good changes c. the quantity demanded changes only slightly when the price of the good changes. d. the price of the good responds only slightly to changes in demand.

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

Which of the following statements about the price elasticity of demand is correct? a. The price elasticity of demand for a good measures the willingness of buyers of the good to move away from the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y d. All of the above are correct.

d. all of the above are correct close substitutes = more elastic

If rectangle D is larger than rectangle A, then a. demand is elastic between prices P1 and P2. b. a decrease in price from P2 to P1 will cause an increase in total revenue c. the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded. d. All of the above are correct.

d. all of the above are correct -demand is elastic between prices P1 and P2 -a decrease in price from P2 to P1 will cause an increase in total revenue -the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded

long term

more elastic

inferior goods

negative income elasticities

normal goods

positive income elasticities