Microeconomics Chapter 6

The Illinois Central Railroad once asked for the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that

the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic

We would expect the cross elasticity of demand between dress shirts and ties to be:

negative, indicating complementary goods

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?

plasma screen and LCD TVs (+4.2)

Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is:

positive, and therefore X is a normal good

We would expect the cross elasticity of demand between Pepsi and Coke to be

positive, indicating substitute goods

If quantity demanded is completely unresponsive to price changes, demand is

price inelastic

Refer to the above graph. If the demand increased, then

price would stay the same and total revenues of sellers would increase

the supply curve of antique reproductions is

relatively elastic

the demand schedules for such products egg, bread, and electricity tend to be

relatively price inelastic

if income elasticity of demand for store brand mac and cheese is -3.00, this means that

store brand mac and cheese is an inferior good

We would expect

the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general

the narrower the definition of a product

the larger the number of substitutes and the greater the price elasticity of demand

It takes a considerable amount of time to increase the production of pork. This implies that:

the short-run supply curve for pork is less elastic than the long-run supply curve for pork

The price of old baseball cards rises rapidly with increases in demand because

the supply of old baseball cards is price inelastic

Which of the following goods will least likely suffer a decline in demand during a recession?

toothpaste

Which of the following is not characteristic of the demand for a commodity that is elastic?

total revenue increases if price is increased

For which product is the income elasticity of demand most likely to be negative?

used clothing

in which price range of the accompanying demand schedule is demand elastic?

$4-$3

Refer to the diagram and assume that price decreases from $10 to $2. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about

.25, and supply is inelastic

In the graph above, what is the price elasticity of supply (using the midpoint formula) between points A and B?

1

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then absolute value of the price elasticity (using the midpoint formula) is

1.37

the supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by

7 percent and quantity supplied rises by 5 percent

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,

The demand for peanuts is inelastic

Which of the following generalizations is not correct?

The price elasticity of demand is greater for necessities than it is for luxuries

the main determinant of elasticity of supply is the

amount of times the producer has to adjust inputs in response to a price change

refer to the graphs above. Which one shows a perfectly elastic demand?

graph A

Refer to the graphs above. Which one shows demand with a price-elasticity coefficient equal to zero?

graph C

To economists, the main differences between "the short run" and "the long run" are that

in the long run all resources are variable while in the short run at least one variable is fixed

an anti drug policy that reduces the supply of heroin might

increase street crime because the addict's demand for heroin is highly inelastic

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should:

increase the price of the software

if the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will

increase the quantity demanded by about 25 percent

Refer to the table. Over the $6-$4 price range, supply is

inelastic

suppose that the total-revenue curve is derived from a particular linear demand curve. That demand curve must be

inelastic for price declines that increase quantity demanded from 6 units to 7 units

the price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range

is elastic

the demand for autos is likely to be

less price elastic than the demand for Honda Accords.