Chapter 6

Technically the elasticity number is negative because

When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.

If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then quantity demanded will fall by what percentage?

6 percent.

Which of the following would most likely have a price elasticity coefficient less than 1?

Coffee.

When demand is elastic, the absolute number for price elasticity will be

Greater than 1.

Price elasticity looks at

How much quantity demanded changes after a change in price.

Elasticity of supply looks at

How responsive sellers are to a change in price.

If a good is normal, its

Income elasticity of demand is positive.

If the elasticity of demand for cigarettes is 0.4, a seller should

Increase price to increase total revenue.

Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will become

Less positive (move closer to zero).

Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to

Lower his price to increase revenue.

Which of the following products will have more inelastic demand?

Medicines

Ceteris paribus, the longer the time period, the

More elastic the demand for the good.

MP3 players and MP3 files are complementary goods. The cross-price elasticity of demand between MP3 players and MP3 files is expected to be

Negative

Price elasticity of demand shows how

Responsive the quantity demanded is to a change in price.

Income elasticity measures the

Responsiveness of quantity demanded to a percentage change in income.

When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus. Postage stamps and Internet service are therefore

Substitutes.

The basic formula for price elasticity is

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

If the price elasticity of demand is equal to 2, the good has _____ demand.

elastic

A demand curve that is completely elastic is

horizontal