Assignment #6

Suppose that each serving of Mac & Cheese costs $0.50 to make no matter how many servings are produced. This means that the price elasticity of supply for Mac & Cheese is ______ and the supply curve is ______.

infinite; perfectly elastic

If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ______.

negative, complements

If most consumer goods and services are ______, then most income elasticities are ______.

normal, positive

If the demand curve for a good is a vertical line at Q = 1, then a decrease in the price of that good will:

not change the quantity demanded

If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:

perfectly inelastic

The price elasticity of demand for a good measures, the responsivemss of

quantity demanded to a 1 percent change in price of that good.

At a price of $20 each, the demand for t-shirts from a group's fundraising activity is unit elastic. Thus, the group's total revenue from selling t-shirts ______ at a price of $20 each.

reach its max

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:

elastic

On a given linear demand curve, as price increases demand becomes

more elastic

If the absolute value of the price elasticity of demand for tickets to a football game is 2, then if the price increases by 1 percent, quantity demanded decreases by:

2 percent

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point i

(P/Q)x (1/slope)

A perfectly elastic demand curve has a slope of ______ while a perfectly inelastic demand curve has a slope of ______.

0; infinity

If a 10 percent decrease in the price of a good leads to a 20 percent increase in the quantity demanded, then what is the price elasticity of demand?

2

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

3

Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______.

3/4; inelastic

If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by:

5.5 percent

All else equal, the price elasticity of demand tends to be higher when:

A good has many substitues.

If the demand curve is horizontal, then demand is:

Perfectly elastic

The price elasticity of demand equals 1:

at the midpoint of a straightline demand curve

Satellite TV is a close substitute for cable TV. In the 1990's, small satellite TV units were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to:

become mor elastic

Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ______ and PepsiCo's ability to raise revenues through price increases ______.

increased; was reduced

If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be:

inelastic

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, than demand for textbooks is:

inelastic

Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is

inelastic (remember percentage is like .05)

If demand is ______ with respect to price, a price increase will ______ total revenue.

inelastic; increase

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:

is perfectly inelastic

Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.

less than

Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is:

less than zero

Suppose you have one hour to catch a flight to Miami for spring break, and it takes 45 minutes to drive to the airport. Your car is almost out of gas and the price of gas at the closest gas station is higher than at other gas stations that are much farther away. To you, the price elasticity of demand for gas is likely to be ______ than it would be if you had several hours before the flight.

lower

A firm that produces a good with many substitutes will most likely find that:

lowering its price will increase total revenue

If cross-price elasticity of demand between two goods is positive, the two goods are:

substitues

When Joe's Gas raises its price for regular unleaded gasoline, total revenue from regular unleaded gas falls to zero. It must be the case that

the demand for Joe's regular unleaded gasoline is perfectly elastic.

Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:

unit elastic

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

water production is characterized by increasing opportunity cost.