CH 6: Describing Supply and Demand: Elasticities

If the price of a good goes up by 40 percent and quantity demanded falls by 20 percent, what is the price elasticity of demand? A. 1/2 B. 1/4 C. 2 D. 4

A. 1/2 b/c 20/40=0.5 (1/2)

A straight line supply curve that has a slope of 0.5 ____ A. Can be elastic or inelastic B. is inelastic C. Is elastic D. Is unit elastic

A. Can be elastic or inelastic

Cross-price elasticity of demand is defined as percentage change in A. Demand for the good divided by percentage change in price of a related good B. Price of a related good divided by percentage change in demand of the good C. Price of a related good multiplied by percentage change in demand of the good D. Demand for the good divided by percentage change in demand of a related good

A. Demand for the good divided by percentage change in price of a related good

When you move up a straight line demand curve, starting where the demand curve intersects the quantity axis, total revenue A. First increase, then decrease B. First decrease, then increase C. Always decrease D. Always increase

A. First increase, then decrease

A pet store has estimated the elasticity of demand for gerbils to be 1.32. Using this information, a store that wants to raise revenues would A. Lower gerbil prices B. Keep gerbil prices the same C. Raise gerbil prices

A. Lower gerbil prices

Price elasticity of supply is the percent change in A. Quantity supplied divided by the percentage change in price B. Quantity supplied multiplied by the percentage change in price C. Price multiplied by the percentage change in quantity supplied D. Price divided by the parentage change in quantity supplied

A. Quantity supplied divided by the percentage change in price

Which of the following factors affects the number of substitutes a good has?A. The time period being considered B. The degree to which a good is a luxury C. The quantity of other goods purchases D. The importance of a good in one's budget E. The market definition

A. The time period being considered B. The degree to which a good is a luxury D. The importance of a good in one's budget E. The market definition

If average movie attendance decreases 10 percent at a local movie theater when prices increase 5 percent, then in absolute terms the elasticity of demand for movie tickets is about: A. 1.0 B. 2.0 C. 0.0 D. 0.5

B. 2.0 B/c 10/5=2.0

When supply is highly elastic and demand increases, price A. Rises significantly while quantity hardly changes at all B. Changes relatively little while quantity increase enormously C. Falls significantly while quantity hardly changes at all D. And quantity remain almost constant

B. Changes relatively little while quantity increase enormously

Luxury goods can be defined as goods that have an income elasticity A. Equals to 0 B. Greater than 1 C. Equals to 1 D. Less than 1

B. Greater than 1

Luxuries are goods that have an income elasticity A. That are negative B. Greater than one C. Less than one

B. Greater than one

The percentage change in quantity demanded divided by the percentage change in income is known as A. Cross income elasticity of demand B. Income elasticity of demand C. Cross demand elasticity D. Demand-pull substitution

B. Income elasticity of demand

A good whose consumption increases with an increase in income is known as A. Scarce good B. Normal good C. Inferior good D. Giffen good

B. Normal good

The price elasticity of supply is the A. Percentage change in the price divided by the percentage change in the quantity supplied B. Percentage change in the quantity supplied divided by the percentage change in price C. Change in the price divided by the change in the quantity supplied D. The change in the quantity supplied divided by the percentage change in price

B. Percentage change in the quantity supplied divided by the percentage change in price

Price elasticity of demand is the percentage change in A. Quantity demanded multiplied by the percentage change in price B. Quantity demanded divided by the percentage change in price C. Price divided by the percentage change in quantity demanded D. Price divided by the change in quantity demanded

B. Quantity demanded divided by the percentage change in price

A market student observes that when the price of ice cream rises by 5 percent, the quantity of ice cream a supplier is willing to sell rises by 10 percent. The student correctly concludes that the elasticity of supply for ice cream is: A. 1/2 B. 0 C. 2 D. 1

C. 2 b/c 10/5=2

For substitutes A. Cross-price elasticity of demand is negative B. Price elasticity of demand is negative C. Cross-price elasticity of demand is positive D. Price elasticity of demand is positive

C. Cross-price elasticity of demand is positive

Perfectly inelastic reflects the situation in which quantity A. Responds equally with changes in price B. Responds enormously to changes in price C. Does not respond at all to changes in price

C. Does not respond at all to changes in price

When you move down the demand curve starting where the demand curve intersects the price axis, total revenue A. First decreases, then increases B. Always decreases C. First increases, then decreases D. Always increases

C. First increases, then decreases

For a normal good, as income increases, consumption ___ A. Remains the same B. Decreases C. Increase

C. Increase

Cross-price elasticity of demand tells us the responsiveness of demand to the change in A. Government regulations B. Income of consumers C. Prices of related goods

C. Prices of related goods

Perfectly elastic reflects the situation in which quantity A. Does not responds at all to changes in price B. Responds equally with change in price C. Responds enormously to changes in price

C. Responds enormously to changes in price

If the quantity of extra long twin bed sheets supplied increases 2 percent when the price goes up 8 percent, the elasticity of supply is: A. 6 B. 4 C. 3/4 D. 1/4

D. 1/4 B/c 2/8= 1/4

Income elasticity is defined as the A. Change in income divided by the change in demand B. Change in demand divided by the change in income C. Percentage change in income divided by the percentage change in demand D. Percentage change in quantity demanded divided by the percentage change in income

D. Percentage change in quantity demanded divided by the percentage change in income

What does the percentage change in quantity demanded divided by the percentage change in price measure?A. Cross price elasticity of demand B. Supply elasticity of demand C. Income elasticity of demand D. Price elasticity of demand

D. Price elasticity of demand

Slope and elasticity are ______ A. The same B. Inversely related C. Unrelated D. Related, but not the same

D. Related, but not the same

When supply is highly inelastic and demand increases, price A. Falls significantly while quantity hardly changes at all B. And quantity remain almost constant C. Remains relatively constant while quantity increases enormously D. Rises significantly while quantity hardly changes at all

D. Rises significantly while quantity hardly changes at all

Goods that can be used in place of one another are called ___ A. Inferior goods B. Complements C. Normal goods D. Substitutes

D. Substitutes

A college bookstore has estimated the elasticity of demand for its textbooks to be 1.89. Using this information, the college bookstore decides to look into how costs will change when they increase production before lowering price... Are they correct in their reasoning? A. No, bc lowering the prices when demand is elastic will lower total revenue regardless of costs B. Yes, bc while lowering prices when demand is inelastic will raise revenue, costs will rise as well. The effect on profit is unclear C. No, bc lowering prices when demand is inelastic will lower revenue regardless of cost D. Yes, bc while lowering prices when demand is elastic will raise revenue, costs will rise as well. The effect on profit is unclear

D. Yes, bc while lowering prices when demand is elastic will raise revenue, costs will rise as well. The effect on profit is unclear

(T/F) A broadly market-defined good has more substitutes than a narrowly market-defined good

False

(T/F) Perfectly elastic reflects the situation in which quantity does not respond to changes in price

False

(T/F) A firm knows that it faces inelastic demand. It should consider increases its price

True

(T/F) Perfectly inelastic reflects the situation in which quantity does not respond to changes in price

True

(T/F) When a supplier faces an elastic demand, it should hesitate to lower prices

True