Chapter 4 Study Guide

The above figure shows the demand curve for movie rentals from Redbox. At which of the following prices does Redbox have the

$2.50

Suppose tennis shoes cost $50 per pair and firms supply 50,000 pairs of shoes. If the price decreases to $45 and firms decide to supply 48,000, the elasticity of supply equals

0.39.

If a 20 percent increase in the price of a used car results in a 10 percent decrease in the quantity of used cars demanded, then the price elasticity of demand equals

0.5

A 10 percent increase in income increases the quantity of orange juice demanded from 19,200 to 20,800 gallons. The income elasticity of demand for orange juice is

0.8.

The table gives some data on the supply of roses in a small town. When the price rises from $15 a dozen to $25 a dozen, the elasticity of supply is ________.

0.80

If a 10 percent increase in income results in an 8 percent increase in the quantity demanded of a good, the income elasticity of demand equals ________ and the good is ________ good.

0.80; a normal

If a 6 percent decrease in the price leads to a 5 percent increase in the quantity demanded, the price elasticity of demand is

0.83

Total revenue for skis is at a maximum when the price elasticity of demand is

1

A 10 percent decrease in the price of a Pepsi decreases the demand for a Coca-Cola by 50 percent. The cross elasticity of demand between a Pepsi and Coca-Cola is

5.

When the price of perfume changes from $24 to $26, the quantity supplied increases from 100 jars to 150 jars. What is the elasticity of supply of perfume?

5.0

If a fall in the price of good A increases the quantity demanded of good B

A and B are complements

The figure above represents the behavior of total revenue as price falls along a straight-line demand curve. What is the price elasticity of demand if total revenue is given by point f?

Demand is elastic.

Which of the following leads a good to have a high elasticity of supply?

II only

The elasticity of the momentary supply curve for any good always equals

None of the above answers is correct

The demand for ________ is more elastic than the demand for ________.

Pepsi; all soft beverages

The table above gives the demand schedule for peas. Which of the following statements CORRECTLY describes the price elasticity of demand?

The price elasticity of demand is larger at point A than at point B.

The price elasticity of demand for corn is 0.4. A new hybrid of corn is discovered and all farmers start to use it, which increases the quantity of corn they can produce from each acre. What happens to the farmers' total revenue?

The total revenue will decrease

Supply is elastic if

a 1 percent change in price leads to a larger percentage change in quantity supplied.

In the summer 2012 the lobster catch in Maine was especially large, but instead of celebrating the fisherman were suffering from a lower total revenue. (Source: New York Times, July 28, 2012) As the lobster catch increases, there is

a movement along the demand curve, resulting in a lower price and an increased quantity.

If the income elasticity for chocolate chip cookies is 1.84, then chocolate chip cookies are

a normal good and income elastic.

The figure illustrates Anne's demand for books. At ________ a book, Anne's demand for books is inelastic

all prices between $10 and $15

As time passes after a change in the price, the supply of a good or service

becomes more elastic.

Goods and services that can be produced by using commonly available resources that could be allocated to a wide variety of alternative tasks have a supply that is

elastic.

The taxicab fare in Newville is regulated. The fare currently charged is $6 a ride. Newville taxicab drivers want to obtain government's permission to lower the fare, which they think will increase their total revenue. From this we can conclude that the drivers believe that the demand for taxicab rides is

elastic.

As income rises, the share of income spent on food in the United States

falls

Peter's monthly income increases from $1,500 to $1,600. As a result, he increases the number of DVDs he buys per month from 2 to 3. Peter's demand for DVDs is

income elastic.

Duke increased his spending on steak from $7 to $11 per week because of a 12 percent salary increase, so his

income elasticity of demand for steak is 3.7.

Bus rides and canned soup are inferior goods, so the ________ elasticity of demand is ________.

income; negative

In the summer 2012 the lobster catch in Maine was especially large, but instead of celebrating the fisherman were suffering from a lower total revenue. (Source: New York Times, July 28, 2012) We learn from the article that despite the larger quantity of lobster caught, the total revenue of the fisherman decreased. This fact means that the demand for lobster is

inelastic.

As Mary's income increases by 20 percent, her demand for tickets to National Hockey League games increases by 10 percent. Mary's demand for tickets is income ________; for Mary, hockey tickets are ________ good.

inelastic; a normal

Of the following, demand is likely to be the least elastic for

insulin for diabetics.

A supply curve that is horizontal reflects a supply that

is elastic.

When consumers' incomes increased 10 percent, the quantity of milk bought increased 5 percent. This result means

milk is a necessity

When the price of milk goes up as a result of a rightward shift of the demand curve for milk, the total revenue collected by milk producers will

none of the above

You are the new vice president in charge of advertising at Taco Bell. In your upcoming advertising campaign, you plan to degrade the fast food competitor whose product is the closest substitute for Taco Bell's tacos. That would be the fast food chain whose cross elasticity of demand with your tacos is equal to

positive 1.55.

The income elasticity of demand is

positive for a normal good and negative for an inferior good.

If tea and coffee are substitutes, the cross elasticity of coffee with respect to the price of tea will be ________ and an increase in the price of tea will ________ the demand for coffee.

positive; increase

The price elasticity of demand for oil is estimated at 0.05. This value means a 10 percent increase in the

price of oil will decrease the quantity of oil demanded by 0.5 percent.

The elasticity of supply measures the sensitivity of

quantity supplied to a change in price

If the supply for a good is elastic, that means that when price increases, the

quantity supplied will increase by a greater percentage than the price increased.

Unit elastic demand means that the

ratio of a percentage change in the quantity demanded to a percentage change in the price equals 1.

Demand is price elastic if a

relatively small price increase leads to a relatively large decrease in the quantity demanded.

Demand is perfectly inelastic when

shifts of the supply curve result in no change in quantity demanded.

If a 1 percent decrease in the price of a pound of oranges results in a smaller percentage decrease in the quantity supplied

supply is inelastic

If the income elasticity of demand for corn is 0.5, then as income increases

the demand for corn will increase

If a 3 percent increase in the price of tennis shoes leads to a 7 percent increase in the number of tennis shoes supplied

the elasticity of supply equals 2.33.

The elasticity of supply does NOT depend on

the fraction of income spent on the product.

Which of the following goods has a perfectly inelastic supply?

the original portrait of "Whistler's Mother"

The income elasticity of demand is the percentage change in ________ divided by the percentage change in ________.

the quantity demanded; income

The increase in the demand for widgets, shown in the figure above, is the result of a decrease in the price of McBoover devices. Therefore

widgets and McBoover devices are complements.