Demand and Elasticity

If the income elasticity of demand for pasta is -1.0, then a 10 percent decrease income will lead to a ____ in the quantity of pasta demanded

10 percent increase since -1.0 x -10=10

If the income elasticity of demand for iPhones is 1.3, then a 10 percent decrease income will lead to a ____ in the quantity of iPhones demanded

13 percent decrease since 1.3 x -10 =13

True or false: if the real price of food is rising, then we know that nominal price of food must be rising too

False, the real price of food can go up even when the nominal price of food is falling if the nominal price of other goods falls by more

The formula for the price elasticity of demand is

P/Q x 1/slope

Suppose the demand for first-class airline tickets is inelastic with respect to price. If the price of first-class airline tickets decreases, then total expenditure will

decrease, if demand is inelastic with respect to price, total expenditure will decrease in response to a price decrease

If the dollar price of books doesn't change, but the average dollar price of all other goods increase, then the real price of books will

decrease, if the dollar price of a good decreases relative to the average dollar price of all other goods, then the real price of a good will decrease

If the elasticity of demand for paper is 0.90, then if the price of paper goes down by 10 percent, the quantity of paper demanded will

go up by 9 percent since 0.9 x 10= 9

Low-income families spend a great share of their budget on electricity than do high-income families. Thus, we would expect the price elasticity of demand for electricity to be ____ for low-income families than for high-income families.

higher, all else equal, the larger the share of a consumer's budget spent on a good, the higher will be the price elasticity of demand for that good

Suppose most people either drink coffee or tea in the morning. If the price of tea increases, then you would expect ____ people to drink coffee and ____ people to drink tea.

more; fewer

The number written on a price tag is a good's

nominal price

Suppose a local politician proposes that the price of lottery tickets be cut in half in order to reduce the total amount that people spend on lottery tickets. This plan will

only be effective if the demand for lottery tickets is inelastic with respect to price

Law of Demand

people do less of what they want to do as the cost of doing it rises

Price x quantity equals

total expenditure and total revenue

Once people have achieved bare subsistence levels of consumption, economists emphasize that we can talk mainly in terms of people's

wants

If demand is perfectly inelastic with respect to price, then the price elasticity of demand is

zero

Suppose that when the price of a sandwich from Dagwood's Deli is $5, there are 200 people who buy 1 sandwich per week and 100 people who buy 2 sandwiches per week. Thus, at the price of $5, the market demanded each week for sandwiches from Dagwood's Deli is

$400, when the price is $5, the quantity demanded is (1x200)+(2x100)=400

If a 5 percent increase leads to 2.5 percent decrease in the quantity of oatmeal demanded, then the absolute value of the income elasticity of demand for oatmeal is

0.5= -2.5/5

If quantity demanded goes up by 10 percent when price falls by 2 percent, then the price elasticity of demand is

5, the price elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in price (=10+2)

If the price elasticity of demand for beer is 1.19, and the price of beer goes up by 1 percent, then the quantity of beer demanded will

go down by 1.19 percent, the elasticity of demand is the percentage change in quantity demanded that results from a 1 percent change in price. In this case, quantity demanded goes down since price goes up

If the price elasticity of demand for milk is 0.4, then if the price of milk goes up by 20 percent, the quantity of milk demanded will

go down by 8 percent since 0.4 x 20 = 8

If the price elasticity of demand for coffee is 0.25, and the price of coffee goes down by 1 percent, then the quantity of coffee demanded will

go up by 0.25 percent

If the price of lawnmowers goes up by 9 percent and the quantity of lawnmowers demanded fails by 5 percent, then the total expenditure on lawnmowers will

increase, if the percentage increase in price is greater than the percentage decrease in quantity demanded, then total expenditure will increase

If the dollar price of houses increases and the average dollar price of other goods increases by more, then the nominal price of houses will ____ and the real price of houses will ____

increase; decrease

If the dollar price of gasoline increases and the average dollar price of other goods increases by less, then the nominal price of gasoline will ____ and the real price of gasoline will ____

increase; increase

the demand for a good is inelastic with respect to price is its price elasticity of demand is less than 1

inelastic

When the price elasticity of demand is less than 1, changes in price and changes in total expenditure

move in the same direction

If ground beef is an inferior good, then the income elasticity of demand for ground beef will be

negative

If the price elasticity of demand is infinite, then demand is

perfectly elastic

If the price elasticity of demand is zero, then demand is

perfectly inelastic

The income elasticity of demanded for potatoes is

the percentage by which the quantity of potatoes demanded changes in response to a 1 percent change in income

the demand for a good is unit elastic with respect to price if its price elasticity of demanded is equal to 1

unit elastic

If the income elasticity of demand for guitars is 0.2, then a 10 percent increases income will lead to a ____ in the quantity of guitars demanded

2 percent increase since 0.2 x 10= 2

If the quantity of spaghetti demanded decreases by 4 percent in response to a 12 percent increase in the price of pasta sauce, then the cross-price elasticity of demand for spaghetti with respect to the price of past sauce is

-0.33, the cross-price elasticity of demand for spaghetti with respect to the price of pasta sauce is the percentage by which the demand for spaghetti changes in response to a 1 percent change in the price of pasta sauce, which is this case is calculated as -4/12= -0.33

If the income elasticity of demand for hamburgers is -0.6, then a 1 percent income will lead to a ____ in the quantity of hamburgers demanded.

0.6 percent decrease since -0.6 x 1= 0.6

The law of demand states the people do less of what they want to do

as the cost of doing it rises

If the cross-price elasticity of demand for yogurt to the respect to the price of granola is negative, then the two goods are

complements

If the owners of a nearby restaurant decreases the price of their food, then their total revenue

could increase since more people may be willing to eat there

If the price of sofas goes up by 10 percent and the quantity of sofas demanded falls by 15 percent, then the total expenditure on sofas will

decrease, if the percentage increase in price is less than the percentage decrease in quantity demanded, then total expenditure will decrease

If the price elasticity of demand for restaurant meals is 1.63, the the demand for restaurant meals is

elastic

When the price of a good goes up, part of the reason consumers purchase less of the good is that they

switch to less expensive substitutes

The nominal price of a good is

the absolute price of the good in dollar terms

The real price of a good is

the dollar price of a good relative to the average dollar price of all other goods

The cross-price elasticity of demand is

the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good

The demand for a good is elastic with respect to price elasticity of demand is greater than 1

elastic

If a store has a 10% off everything sale, then the store's total revenue will fall

if the demand for the store's products is inelastic with respect to price

True or false: economists believe that our preferences for different goods and services do change over time

false

If the cross-price elasticity of demand for motorcycles with respect to the price of cars is 0.05, then if the price of cars increases by 10 percent, the quantity of motorcycles demanded will

increase by 0.5 percent

If an early frost damages this year's orange crop, causing the supply curve for oranges to shift to the left, then total revenue from the sale of oranges will

increase is the demand for oranges is inelastic with respect to price

If the cross-price elasticity of demand for ice cream with respect to the price of apple pie is negative, then the two goods are

complements

If the price elasticity of demand is greater than 1 and price increases, then total expenditure will

decrease

If the demand for first-class airline tickets is inelastic with respect to price, then if the price of first-class airline increases, then total expenditure will

increase, if demand is inelastic with respect to price, total expenditure will increase in response to price increase

If the dollar price of ibuprofen, and the average dollar price of all other goods stays the same, the the real price of ibuprofen will

increase, if the dollar price of a good increases relative to the average dollar price of all other goods, then the real price of a good will increase

If the cross-price elasticity of demand for baseball caps with respect to the price of sunglasses is positive, then the two goods are

substitutes

The price elasticity of demand is

the percentage change in quantity demanded relative to a percentage change in price

The price elasticity of demand for water will be ____ in the long run than in the short run.

higher, over the time people will figure out ways to use less water (for example, by installing low-flow shower heads), so the elasticity of demand for water will be higher in the long run than in the short run

The elasticity of demand for a given brand of ice cream is likely to be ____ than the elasticity of demand for ice cream in general

higher, since there is no more substitution possibilities for a given brand of ice cream than for ice creaming general, the elasticity of demand for ice cream in general

If the price elasticity of demand for beer is 1.19, and the price of beer goes up by 1%, then the quantity of beer demanded will

go down by 1.19 percent, the elasticity of demand is the percentage change in quantity demanded that results from a 1 percent change in price. In this case, quantity demanded goes down since price goes down