Microeconomics Chapter 5: Elasticity

Which of the following describe a product with an elastic demand?

Computer tablet for surfing the internet.

If the price of Sperry shoes goes up from $100 to $120 and the quantity supplied increases from 800 to 900 pairs.

It would increase by 0.65%.

Suppose there is a major technological advance in the production of a good that causes production costs to fall. If demand for the product is relatively inelastic, what will happen in the market?

The price decrease will be relatively greater than the increase in quantity.

Using the midpoint method, calculate the price elasticity of demand of Good X using the following information: When the price of good X is $50, the quantity demanded of good X is 400 units. When the price of good X rises to $60, the quantity demanded of good X falls to 300 units.

The price elasticity of demand for good X = 1.57.

Using the midpoint method, calculate the price elasticity of demand of Good Z using the following information: When the price of good Z is $10 (P1), the quantity demanded of good Z is 85 units (Q1). When the price of good Z rises to $15 (P2), the quantity demanded of good Z falls to 60 units (Q2).

The price elasticity of demand for good Z = 0.86.

Which of the following goods represent a cross-price elasticity likely greater than zero?

The substitute goods of blueberries and strawberries.

You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand, several years after the price change, will be about −1.5. Select the statement that best describes the results of raising the fare in the long run.

Total revenue falls, since demand changes and becomes price elastic.

elasticity

an economics concept that measures responsiveness of one variable to changes in another variable

If the demand for a product is inelastic but the supply is elastic, the ________ will bear the tax incidence.

consumer

The electric company in a city increased its prices by 15% five years ago. Over time more people have purchased efficient appliances or switched to gas, and the demand of electricity in the long run has become more ________. Also in the long run the equilibrium quantity demanded has ________.

elastic; decreased

If the demand curve for energy is at first inelastic, then changes over time and becomes increasingly elastic, then the demand curve is

getting flatter.

Elasticity refers to

how responsive one variable is to changes in another

Joe received a promotion this year at work and now has an income which has increased by 21% since last year. Joe has now increased his quantity demanded of red wine by 7%. In this example, Joe's

income elasticity is .33 and the good is a normal good.

If demand is ________, an increase in price also causes an increase in total revenue.

inelastic.

If the change % in quantity and % change in price from a graph for gasoline is less than 1, it is considered

inelastic.

Price and total revenue are positively related when demand is

inelastic.

Marge, who is 46, is considered part of the ________ labor supply, while Jessica, who is 17, is considered part of the ________ labor supply.

inelastic; elastic

tax incidence

manner in which the tax burden is divided between buyers and sellers

price elasticity of demand

percentage change in the quantity demanded of a good or service divided the percentage change in price

price elasticity of supply

percentage change in the quantity supplied divided by the percentage change in price

perfect inelasticity

perfect inelasticity

perfect elasticity

see infinite elasticity

infinite elasticity

the extremely elastic situation of demand or supply where quantity changes by an infinite amount in response to any change in price; horizontal in appearance

zero inelasticity

the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance

wage elasticity of labor supply

the percentage change in hours worked divided by the percentage change in wages

The elasticity of supply is defined as the

the percentage change in quantity supplied divided by the percentage change in price.

cross-price elasticity of demand

the percentage change in the quantity of good A that is demanded as a result of a percentage change in good B

elasticity of savings

the percentage change in the quantity of savings divided by the percentage change in interest rates

The total revenue for J-Money's T-Shirt shop is calculated as ________.

the price of a product times the number of units sold, or TR=P x Q

price elasticity

the relationship between the percent change in price resulting in a corresponding percentage change in the quantity demanded or supplied

When elasticity of demand is equal to one and the change in the quantity demanded and the change in price are exactly proportional. This type of elasticity is described as ________.

unitary elastic

constant unitary elasticity

when a given percent price change in price leads to an equal percentage change in quantity demanded or supplied

unitary elasticity

when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied

elastic demand

when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

inelastic demand

when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes

elastic supply

when the elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

inelastic supply

when the elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)