chapter 6 elasticity

Suppose that as the price of Y falls from $12 to $10, the quantity of Y demanded increases from 500 to 600. Then the absolute value of the price elasticity (using the midpoint formula) is approximately

1

Which types of goods are most adversely affected by recessions?

Goods for which the income elasticity coefficient is relatively high and positive.

Which of the following is not characteristic of the demand for a commodity that is elastic?

Total revenue increases if price is increased.

The law of diminishing marginal utility states that

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

The price elasticity of demand coefficient measures

buyer reponsiveness to price changes

A perfectly inelastic demand schedule

can be represented by a line parallel to the vertical axis.

If a firm's demand for labor is elastic, a union-negotiated wage increase will

cause the firm total payroll to decline

Suppose that the total-revenue curve is derived from a particular linear demand curve. That demand curve must be

inelastic for price declines that increase quantity demanded from 6 units to 7 units.

Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is

less than 1, and therefore supply is inelastic.

We use the midpoint formula in computing the price elasticity of demand coefficient in order to

make the coefficient value become independent of whether price goes up or down.

Based on the data in the table, you can conclude that the

marginal utility of the second unit is 6.

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy

more of X and/or less of Y.

Cross elasticity of demand is

negative for complementary goods.

Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

negative, and therefore these goods are complements.

We would expect the cross elasticity of demand between dress shirts and ties to be

negative, indicating complementary goods.

Most economists contend that

noncash gifts are less efficient than cash gifts.

In the immediate market period for a highly perishable crop like tomatoes, the individual farmer's supply curve tends to be

perfectly inelastic

The increase in demand for iPad tablet computers can be explained by

the enhanced versatility and storage capacity of iPads, making their MU/P increase.

Refer to the table. Over the $8-$6 price range, supply is

inelastic

Over which of the following price ranges is the demand unit-elastic?

$12-$10

Over which of the following price ranges is the price-elasticity of supply greater than 1?

$25-$30

The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

$6 and $4

In the graph above, what is the price elasticity of supply (using the midpoint formula) between points A and B?

1

Refer to the diagram and assume that price increases from $2 to $10. The coefficient of price elasticity of demand (midpoint formula) relating to this change in price is about

0.25, and demand is inelastic.

Refer to the diagram and assume that price decreases from $10 to $2. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about

0.25, and supply is inelastic.

Refer to the diagram and assume that price increases from $2 to $10. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about

0.25, and supply is inelastic.

Refer to the diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be

1.2

When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. The price-elasticity-of-demand coefficient for this product is

1.5

The price elasticity of demand for widgets is 0.75. Assuming no change in the demand curve for widgets, a 9 percent decrease in sales implies a(n)

12 percent increase in price.

A consumer has an income of $200, and the price of X is $5, while the price of Y is $10. If the consumer buys 8 units of X, then the maximum quantity of Y that she could also buy is

16

Refer to the diagram. The total utility yielded by 4 units of X is

17

A 3 percent increase in the price of tea causes 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

2

The table shows the total utility data for products X and Y. Assume that the prices of X and Y are $1.5 and $2, respectively, and that consumer income is $9. How many units of the two products will the consumer buy to get maximum utility?

2 of X and 3 of Y

A child is given $4.80 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies $1.20 each. The marginal utilities derived from each product are as shown in the following table. Which combination would give the child the maximum utility out of spending $4.80?

3 chocolates and 3 hard candies

Refer to the diagram. The marginal utility of the third unit of X is

4

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $1.5 and $3, respectively, and that the consumer's income is $18 how many units of the two products will the rational consumer purchase?

4 of L and 4 of M

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $25 What level of total utility does the rational consumer realize in equilibrium?

58 utils

Refer to the diagram. Total utility is at a maximum at _____ units of X.

6

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three cans of Pepsi is 38 units of utility. The marginal utility of the third Pepsi is

8 units of ulitity

If the total utility from consuming four units of a product is 78 and the marginal utility of a fifth unit is 7, then the total utility from consuming five units would be

85

If the marginal utility from consuming the sixth unit of a product is 8 and the total utility from all six units is 98, then the total utility from consuming five units must be

90

Refer to the diagram. Between prices of $5.70 and $6.30,

D1 is more elastic than D2.

Which of the following is correct?

If marginal utility is diminishing and is a positive amount, total utility will increase.

Which of the following has been a significant factor in the ability of iPads to compete effectively against laptop and desktop computers?

Many consumers perceive that iPads are superior to laptops and desktop computers for the consumption of digital media.

PRICE CHANGE: Percentage Change

P2 - P1 x 100 (P1 + P2)/2

QUANTITY CHANGE: Percentage Change

Q2 - Q1 x 100 (Q1+ Q2)/2

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?

The different brands are almost identical. I always buy the cheapest."

A supply curve that is a vertical straight line indicates that

a change in price will have no effect on the quantity supplied.

Considering the price-elasticity of demand for wheat, we would expect that if the supply of wheat increases, other factors constant, then wheat farmers' total revenues would

decrease because the demand is price-inelastic.

Refer to the diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70, consumer expenditure would

decrease if demand were D2 only.

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week,

demand will become less price elastic.

Along a linear downward-sloping demand curve, the price elasticity of demand will be

different across each price range

Refer to the diagram. If price falls from $10 to $2, total revenue

falls from A + B to B + C, and demand is inelastic.

Most demand curves are relatively elastic in the upper-left portion because the original price

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

The larger the positive cross elasticity coefficient of demand between products X and Y, the

greater their substitutability.

Based on taste and preference alone, which good does the child prefer?

hard candies

The price elasticity of demand is relatively inelastic

in the $3-$1 price range.

The price elasticity of demand is relatively elastic

in the $6-$4 price range.

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will

increase the quantity demanded by about 25 percent.

The fact that most medical care purchases are financed through insurance

increases the amount of health care consumed by reducing the price of additional units of care.

Assume that a consumer purchases a combination of product A and product B such that the MUa/Pa = 10 and MUb/Pb = 12. To maximize utility without spending more money, the consumer should

purchase less of product A and more of product B.

Refer to the diagram, where xy is the relevant budget line and I1, I2, and I3 are indifference curves. If the consumer is initially at point L, he or she should

purchase more of Y and less of X

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is

relatively elastic

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is

relatively inelastic

Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils, respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. You

should consume less of X and more of Y.

The larger the coefficient of price elasticity of demand for a product, the

smaller the resulting price change for an increase in supply.

If the income elasticity of demand for store brand macaroni and cheese is −3.00, this means that

store brand macaroni and cheese is an inferior good.

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

the demand for pizza is elastic above $5 and inelastic below $5.

The price of diamonds is substantially greater than the price of water because

the marginal utility of the last diamond purchased is significantly greater than the marginal utility of the last gallon of water purchased by a typical person.

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed.

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then

the price elasticity of demand is approximately 2.25.

The diamond-water paradox occurs because

the price of a product is related to its marginal utility, not its total utility.

It takes a considerable amount of time to increase the production of pork. This implies that

the short-run supply curve for pork is less elastic than the long-run supply curve for pork.

We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because

there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically.

Which of the following goods will least likely suffer a decline in demand during a recession?

toothpaste

The ability of a good or service to satisfy wants is called

ulitity

Suppose the total-revenue curve is derived from a particular linear demand curve. That demand curve must be

unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively. A 1 percent decrease in price will increase total revenue in the cases of

w and y