Microeconomics Chapter 6
What happens when the quantity demanded is very responsive to changes in price?
The percentage change in quantity demanded will be greater than the percentage change in price.
basically, if the percentage change of price of a good is EQUAL to the percentage change of quantity demanded, it can be considered
Unit-elastic
Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.
$3.62
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:
-1.25
If a 11 percent increase in the price of Cheerios causes a 14 percent reduction in the number of boxes of cereal demanded, the price elasticity of demand for Cheerios is ______________________
-1.27 and the demand is elastic
factors of price elasticity of demand
-availability of substitutes -passage of time -whether the good is luxury or necessity -definition of the market -share of the good in the consumers budget
The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?
an inferior good
If the demand for orange juice is elastic, will an increase in the price of orange juice increase or decrease the revenue received by orange juice sellers?
decrease
cutting price when demand is inelastic will __________
decrease total revenue
cutting price when demand is unit elastic will ___________
do nothing to total revenue
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.
elastic
If the supply of Good B is perfectly elastic and price falls the quantity supplied will:
fall to zero
The more substitutes that exist for a particular product, the __________ the price elasticity of demand.
greater
One study found that the price elasticity of demand for soda is minus−0.78, while the price elasticity of demand for Coca-Cola is minus−1.22.
greater than it is for soda as a product because there are more substitutes for Coca-Cola than soda.
At current prices of a highly addictive drug the demand for the drug is highly price:
inelastic
The price elasticity of demand for a particular brand of raisin bran is, in absolute value,
larger than the price elasticity of demand for all breakfast cereals.
a product is inelastic if in absolute value it is _____________
less than one in absolute value
In general, the demand for a good will be _________ elastic the ___________ the share of the good in the average consumer's budget.
less, smaller
If the income elasticity of demand is greater than 1, then the good is a ___________________
luxury
when demand curves intersect,______________________
the flatter curve is more elastic
Why isn't elasticity just measured by the slope of the demand curve?
the measurement of slope is sensitive to the units chosen for quantity and price
If prices rise the quantity supplied will be greater:
the more time that passes
Income elasticity of demand is
the percentage change in quantity demanded divided by the percentage change in income.
What is the cross-price elasticity of demand for two goods that are unrelated?
zero
if two products are unrelated, the cross price elasticity will be ________________
zero
The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?
10% rise
An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.
an increase, positive
Personal computers and computer display monitors are:
complements
Along a linear demand curve, the slope __________ while the price elasticity of demand __________.
is constant, changes from one point to another
When you compute a price elasticity of demand the answer is always:
negative
formula for income elasticity of demand
percentage change in quantity demanded ------------------------------------------------- percentage change in income
The price of organic apples falls and apple growers find that their revenue increases. Is the demand for organic apples elastic or inelastic?
elastic
basically, if you do the price elasticity formula for a good and it comes out positive, it can be considered ____________
elastic
The price elasticity of demand in the United States for crude oil has been estimated to be minus−0.061 in the short run and minus−0.453 in the long run. the demand for crude oil is___________________
is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found.
The Energy Information Administration estimated that in 2012, American consumers spent 4 percent of their incomes on gasoline. If, instead, consumers spent 8 percent of their incomes on gasoline, the price elasticity of demand likely would be
higher
cutting price when demand is elastic will __________________
increase total revenue
If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.
increase, 8.0
A perfectly inelastic supply curve:
indicates quantity supplied does not respond to a change in price
The more substitutes available for a product, the greater the price elasticity of demand.
True
The key determinants of the price elasticity of demand for a product are:
availability of close substitutes, passage of time, necessities versus luxuries, definition of the market, and share of the good in the consumer's budget.
which determinant of price elasticity of demand is most important
availability of substitutes
the price elasticity of demand will always be a _____________ number
negative
Firms often rely on market experiments to calculate the price elasticity of demand for a new product.
true
The cross-price elasticity of demand is
the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
elasticity
the responsiveness of one economic variable from the change of another economic variable
price elasticity of demand
the responsiveness of the quantity demanded of a good in relation to changes in its price
price elasticity of supply
the responsiveness of the quantity supplied of a good in relation to changes in its price.
price elasticity of demand is not the same as ___________________
the slope of the demand curve
the more _________ that passes, the more elastic the demand for the product will be
time
total revenue
total amount of funds a firm receives for selling goods
The entrance fee into Yellowstone National Park in northwestern Wyoming is "$25 for a private, noncommercial vehicle; $20 for each snowmobile or motorcycle; or $12 for each visitor 16 and older entering by foot, bike, ski, etc." The fee provides the visitor with a seven-day entrance permit into Yellowstone and nearby Grand Teton National Park. Of the three ways to enter the parklong dash—in a private, noncommercial vehicle; on a snowmobile or motorcycle; and by foot, bike, or skilong dash—which way would you expect to have the largest price elasticity of demand, and which would you expect to have the smallest price elasticity of demand?
The private, noncommercial vehicle has the largest price elasticity of demand and visitors 16 and older entering by foot, bike, ski, etc. have the smallest price elasticity of demand.
For which of the following products is the price elasticity of demand (in absolute value) the largest? Tide Liquid Forumla Automobiles Milk Cigarettes
Tide liquid formula
2.0
Using the initial value formula, the value of price elasticity of supply between points s and t equals:
left
Which of these demand curves shows a perfectly inelastic demand?
If the income elasticity of SUVs is greater than 1, what is the good considered?
a luxury
when comparing price elasticity of demand to another we compare the _____________________ of both goods
absolute value
formula for price elasticity of demand
percentage change in quantity demanded ------------------------------------------------ percentage change in price
when the quantity demanded of a product is NOT elastic to the price, then _______________________
percentage change in quantity demanded will be less then the percentage change in price
cross price elasticity of demand
percentage change in the quantity demanded one of good divided by the percentage change of another good
Economists avoid confusion over units in the computation of elasticity by using:
percentage changes
economists use ______________________ to measure the price elasticity of demand
percentage changes
if a supply curve is a horizontal line, it is
perfectly elastic
if the demand curve is a horizontal line, it is ______________
perfectly elastic
if a supply curve is a vertical line, it is
perfectly inelastic
if the demand curve is a vertical line, it is ____________
perfectly inelastic
because supply curves are upward sloping price elasticity of supply will always be a _________ number
positive
if the price of a substitute increase, cross price elasticity will be ___________________
positive
The price elasticity of supply always has a:
positive value
For a normal good, the income elasticity of demand will be
positive, but for an inferior good, the income elasticity of demand will be negative.
The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.
price elasticity of demand
According to an article in the New York Times, in 2011 the Port Authority of New York and New Jersey was planning to increase the tolls on the bridges and tunnels crossing the Hudson River by as much as 50 percent. According to the article, "Revenue from the . . . higher tolls would raise an additional $720 million for the agency. . . ." The Port Authority might be reasonably confident about the $720 million revenue for the agency ___________
because they know that the percentage decrease in the quantity of vehicles will be less than the percentage increase in tolls received.
If the cross-price elasticity of demand between two products is -3.0, then the two products are:
complements
If the cross-price elasticity of demand is negative, then the products are:
complements
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, demand for Red Bull is _______ in this range.
elastic
According to an article in the New York Times, in 2011 the Port Authority of New York and New Jersey was planning to increase the tolls on the bridges and tunnels crossing the Hudson River by as much as 50 percent. According to the article, "Revenue from the . . . higher tolls would raise an additional $720 million for the agency. . . ." The Port Authority is assuming that the demand for using bridges and tunnels crossing the Hudson is ______________
inelastic
basically, if you do the price elasticity formula for a good and it comes out negative, it can be considered ____________
inelastic
if price elasticity of supply is less than 1, it is considered
inelastic
The disappearance of the family farm can be partially attributed to the fact that the elasticity of demand for wheat is __________, while at the same time, the income elasticity for wheat is __________.
inelastic, low
the ___________ the share the good is in a consumers budget, the more elastic it will be
more
An article in the Dallas Morning News discussed the market for green cars such as hybrid gasoline, electric cars, and diesel cars. One factor the article mentioned as affecting the market for green cars was the increasing gas mileage of conventional gasoline-powered cars. This factor is likely to cause the demand for green cars to become
more price elastic
In the 2010 holiday season, Steve Richardson decided to cut the prices of his hand-crafted wooden puzzles to increase sales. According to a newspaper account, "the number of orders at Stave Puzzles Inc., his Norwich, Vt. business, hasn't been enough to offset the price cuts."
must be inelastic because the percentage increase in the quantity demanded for orders is less than the percentage decrease in price of the puzzles.
the more __________ we define a market, the more elastic it will be
narrow
If the income elasticity of demand is positive but less than 1, then the good is a
necessity
if the price of a complement increase, cross price elasticity will be ___________________
negative
Which of the following goods is probably the most highly income elastic? Private Education, Food, salt
private education
when consumer income rises,____________________
quantity demanded for luxury goods will rise; quantity demand for inferior goods will fall
when consumer income rises, _________________________
quantity demanded for normal goods will rise
perfectly inelastic demand curve
quantity demanded is completely unchanged by change in price
law of demand says that when the price of a good falls then, _____________________
quantity demanded will increase
The midpoint method for calculating price elasticity of demand is:
the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices.
What is the formula for the price elasticity of demand?
the percentage change in quantity demanded divided by the percentage change in price.