Chapter 5

The flatter the demand curve through a given point, the

greater the price elasticity of demand at that point.

The greater the price elasticity of demand, the

greater the responsiveness of quantity demanded to a change in price.

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

0.67.

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.

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

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good.

Ryan says that he would buy one cup of coffee every day regardless of the price. If he is telling the truth, Ryan's

demand for coffee is perfectly inelastic.

To determine whether a good is considered normal or inferior, one could examine the value of the

income elasticity of demand for that good.

The supply of oil is likely to be

inelastic in the short run and elastic in the long run.

Goods with many close substitutes tend to have

more elastic demands

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

negative, and the good is an inferior good.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

Economists compute the price elasticity of demand as the

percentage change in quantity demanded divided by the percentage change in price.

If two goods are substitutes, their cross-price elasticity will be

positive.

A perfectly inelastic demand implies that buyers

purchase the same amount as before when the price rises or falls.

The price elasticity of demand measures how much

quantity demanded responds to a change in price

Total revenue

remains unchanged as price increases when demand is unit elastic.

For a good that is a luxury, demand

tends to be elastic

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

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.