Ch. 5 Elasticity Quiz
When the cross-price elasticity of demand between two products is positive, the two goods are said to be substitutes.
True
The total revenue from selling trucks is equal to ____
the price of a truck times the quantity sold.
Unit elastic
a given change in price causes a proportional change in quantity demanded
0<E<1
inelastic
As the economy recovers from a recession, we should expect that the _____
demand for inferior goods will fall and the demand for normal goods will rise.
The supply of a product will be more elastic if _____
the time the producer has to adjust to a price change is long.
E=1
unit elastic
If demand is elastic, a decrease in price leads to a decrease in total revenue.
False
Total revenue is maximized where demand is inelastic
False
The value of the price elasticity of demand for a good with no close substitutes tends to be _____
0<Ed<1; inelastic
1<e<infinity
elastic
Elastic
the change in price has a relatively large effect on quantity demanded.
Total Revenue Formula
TR = p x q
Cross-price elasticity of demand (XED)
A measure of the percentage change in the demand for one good divided by the percentage change in the price of another good
The ability of increasing quantity supplied in response to a higher price is identical across industries.
False
The availability of substitutes makes the demand for a good less elastic.
False
The demand for firewood is likely to be more elastic in summer than in winter.
True
The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.
True
The larger the proportion of a consumer's budget that is spent on a product, the more the consumer will be affected by a change in the price of the product.
True
E=infinity
perfectly elastic
E=0
perfectly inelastic
The supply of paintings by Van Gogh is most likely to be _____
perfectly inelastic because supply is limited.
Inelastic
quantity demanded is relatively unresponsive to a change in price.
If an increase in the price of Pepsi prompts some consumers to buy close substitutes, the demand for Pepsi is _____ (what kind of elasticity?)
relatively price elastic.
If demand is unit elastic, a price reduction will ____
remains the same
What is the effect of a 10 percent price increase on total revenue if 1 is less than elasticity and elasticity is less than infinity?
revenue decreases
A normal good is defined as a product for which quantity demanded increases as price decreases.
False
Any supply curve that is a straight line passing through the graph's origin is unit elastic.
True
As price decreases along a linear demand curve, the price elasticity of demand decreases.
True
Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.
True
If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.
True
Substitutes are pairs of goods that have a positive cross-price elasticity of demand.
True
What is the effect of a 10 percent price increase on quantity demanded if 1 is less than elasticity and elasticity is less than infinity?
Quantity demanded drops by more than 10 percent.
What is the effect of a 10 percent price increase on quantity demanded if elasticity is infinite?
Quantity demanded drops to 0.
What is the effect of a 10 percent price increase on total revenue if elasticity is equal to 1?
Revenue does not change.
Wheat farmers in Kansas would benefit from a devastating crop failure in North Dakota (another major wheat-producing state) if the U.S. demand for wheat is _____
elastic.
If quantity increases by 15 percent when prices increase 5 percent then elasticity for this product is _____.
3
As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.
False
Cross-price elasticity measures the responsiveness of the price of Good A to a change in the price of Good B.
False
Elasticity rises as price falls along a linear downward-sloping demand curve.
False
If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.
False
If the demand curve shifts, but the supply curve does not, and the price remains the same, supply must be perfectly inelastic.
False
Luxury goods are ____
Income Elastic
What is the effect of a 10 percent price increase on quantity demanded if elasticity is equal to 1?
Quantity demanded drops by 10 percent.
Necessities and luxuries are both types of normal goods
True
Price elasticity is 1 at the midpoint of a linear downward-sloping demand curve.
True
Total revenue is the same for every price-quantity combination along a unit-elastic demand curve.
True
If an increase in the price of peanut butter causes a decline in the demand for jelly, then _____
the goods are complements.
