unit 5

If demand is price inelastic, then

buyers do not respond much to a change in price.

When quantity demanded responds strongly to changes in price, demand is said to be

elastic

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

.67

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

1

Which of the following expressions is valid for the price elasticity of demand?

Price elasticity of demand = .

For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The market for the good is broadly defined.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

a 13.33 percent increase in the price of the good

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

2.33

If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by

3.48%, and aluminum foil sellers' total revenue will increase as a result.

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a

3.6 percent increase in the quantity demanded

When consumers face rising gasoline prices, they typically

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

The demand for grape-flavored Hubba Bubba bubble gum is likely

elastic because there are many close substitutes for grape-flavored Hubba Bubba.

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

elastic, and her demand curve would be relatively flat.

The midpoint method is used to compute elasticity because it

gives the same answer regardless of the direction of change.

In general, elasticity is a measure of

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

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

inelastic

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

inelastic.

The difference between slope and elasticity is that slope

is a ratio of two changes, and elasticity is a ratio of two percentage changes.

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes.

When a supply curve is relatively flat,

supply is relatively elastic.

For a good that is a necessity, demand

tends to be inelastic.

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,

the equilibrium price increases, and the equilibrium quantity is unchanged.

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.