Microeconomics Chapter 5

Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs is

-2.33, and hot dogs are an inferior good

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about

1.2, and X and Y are substitutes

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for totrilla chips in the given price range is

2.20

Refer to Table 8. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is

2.8

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

40%

Refer to figure 12. Which demand curve is perfectly inelastic?

A

Refer to figure 12. The demand curve representing the demand for a luxury good with several close substitutes is

C

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

D

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

Price Elasticity of Demand= [(Q2-Q1)/[(Q2+Q1)/2]/[(P2-P1)/[(P2+P1)/2] =2.33

For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are many substitutes for this good

If demand is price inelastic, then

buyers do not respond much to a change in price

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is

elastic

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

decrease the price of ice cream

There are very few, if any, good substitutes for motor oil. Therefore, the

demand for motor oil would tend to be inelastic

When the price of chai tea lattes is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattes is

elastic, and her demand curve would be relatively flat

In general, elasticity is

how much buyers and sellers respond to changes in market conditions.

Refer to the figure below. If the price falls from point A to point B, total revenue

increases, and demand is price elastic

An increase in price causes an increase in total revenue when demand is

inelastic

Demand is said to be inelastic if the

quantity demanded changes proportionately less than price

When consumers face rising gasoline prices, they typically

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

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

the definition of the market for the good

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives on the weekends to try to save money. Within the year, she sells her home and purchased one only 10 miles from her place of employment. These examples illustrate the importance of

the time horizon in determining the price elasticity of demand

The price elasticity of demand for mobile phones

will be lower if consumers perceive mobile phones to be a necessity