DSM 6

Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.

$3.62

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:

-1.25

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?

10%, rise

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?

An inferior good

Which of the following goods is probably the most highly income elastic?

Private education

What is the cross-price elasticity of demand for two goods that are unrelated?

Zero

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.

an increase, positive

If the cross-price elasticity of demand between two products is -3.0, then the two products are:

complements

Personal computers and computer display monitors are:

complements

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range

elastic

If the supply of Good B is perfectly elastic and price falls the quantity supplied will:

fall to zero

The more substitutes that exist for a particular product, the __________ the price elasticity of demand.

greater

If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.

increase, 8.0

A perfectly inelastic supply curve:

indicates the quantity supplied does not respond to a change in price

At current prices of a highly addictive drug the demand for the drug is highly price:

inelastic

The disappearance of the family farm can be partially attributed to the fact that the elasticity of demand for wheat is __________, while at the same time, the income elasticity for wheat is __________.

inelastic, low

Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

When you compute a price elasticity of demand the answer is always:

negative

Economists avoid confusion over units in the computation of elasticity by using:

percentage changes

The price elasticity of supply always has a:

positive value

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.

price elasticity of demand

If prices rise the quantity supplied will be greater:

the longer the time that elapses

If the income elasticity of SUVs is greater than 1, what is the good considered?

A luxury