ECON 2110 Chapter 5

The longer the time that has elapsed since the price of a good changed, the

more elastic the demand for that good.

Using the data in the table above, the equilibrium quantity and equilibrium price for a stapler is

$70,000 and 6

If the price doubles and the quantity supplied also doubles, the price elasticity of supply for the good is

1

In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $6 to $5 is equal to

1.10

If the price of a movie rises 3 percent and, as a result, the quantity demanded of video rentals increases 6 percent, then the cross elasticity of demand is

2

The table above shows the situation in the gasoline market in Tulsa, Oklahoma. If the price of a gallon of gasoline is $2.30 then

There is a surplus of gasoline in Tulsa

Assume that it is predicted that for the years after you graduate from college, the entire economy will experience a long period of recession during which people's incomes decrease. What type of industry would be the best for you to find employment if this prediction is correct? An industry that produces a product that

Is inferior

Which of the following explains why supply is more elastic as more time passes?

It is difficult or impossible to increase the quantity produced in a short period of time.

Of the following, which good has the most elastic demand?

Post Raisin Brand purchased at a Safeway grocery store

The figure shows two different supply curves. At the point where they cross, ________ is more likely to represent the long-run supply curve for rice, a good that has ________ supply.

S2; elastic

Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake.

The cross elasticity is -0.75

Suppose the University of Oklahoma increases the price of student football tickets for the 2012season by 30 percent. If the price elasticity of demand for student tickets is 1.22, the price increase leads to

a 36.6 percent decrease in the quantity demanded.

If Microsoft wanted to prove to the Justice Department that its Windows software has many substitutes that personal computer owners can use, Microsoft hopes to find

a large positive value for the cross elasticity of Windows and other software

People eat at restaurants less often when their incomes fall because of a recession. Eating at restaurants must be

a normal good

The figure above shows the supply curve for a good with

a perfectly elastic supply

What is an inferior good?

a product for which demand increases when income decreases, and demand decreases when income increases

Suppose a 20 percent increase in the price of gasoline results in a 25 percent increase in the quantity supplied. This response means that gasoline has

an elastic supply

The cross elasticity of demand for Good A and Good B is -0.7. This means that

both A and D are correct.

Alan purchases 10 percent fewer bags of chips when his income decreases by 5 percent. Based on only this information, we know that for Alan

chips are a normal good

Based on the data in the table above, ice cream and cake are ________ goods.

complementary

If the price of tangerines increases, the price of oranges also rises because

consumers consider the two goods substitutes and demand for oranges increases

As a falling price eliminates a surplus in the jersey market,

consumers increase the quantity of jerseys they demand.

If we are trying to determine if two different products are substitutes, complements, or not related at all, we should find the value of the

cross elasticity of demand

Patrick lives near two gas stations, Exxon and Shell. If Exxon decreases the price of gas, we predict that the quantity of gasoline demanded at Shell will

decrease because Exxon and Shell gas are substitutes

The figure shows a demand curve. The price elasticity of demand at point C= 1.00.If the price increases from $20 to $25, total revenue will

decrease because demand is elastic

The figure shows a demand curve. The price elasticity at point C equals 1.00.Suppose the price falls from $10 to $5. As a result, total revenue will

decrease because demand is inelastic

If a substitute good is easy to find, then demand for a good is

elastic

Suppose the Chicago Bears football team raises ticket prices by 13 percent and as a result the quantity of tickets demanded decreases by 21 percent. This response means that the demand forBears tickets is

elastic

When hamburger is $3 per pound, Ms. Rush buys 6 pounds. When hamburger is $2 per pound,Ms. Rush buys 10 pounds. Describe Ms. Rush's demand between these two prices.

elastic

Bagels and cream cheese are complementary goods. Suppose that the price for flour, which is used to produce bagels, increases. The equilibrium price of cream cheese ________, and the equilibrium quantity of cream cheese ________.

falls; decreases

The demand for cat food decreases while the supply increases. The equilibrium price of cat food ________, and the equilibrium quantity ________.

falls; perhaps changes but we can't say if it increases, decreases, or stays the same

The above figures show the market for HD televisions. If research is published showing that watching HD television shows causes eye damage, then which figure shows the effect of this change?

figure b

If the percentage change in price is 10 percent and the demand is elastic, then the percentage change in the quantity demanded

is larger than 10%

The demand for a good is more elastic if the

good is narrowly defined

Running shoes are likely to have a ________ elasticity of supply compared to bananas because________.

higher; shoes are easier to store compared to bananas

The price elasticity of supply is always a positive value because

i only

Market equilibrium i. can never occur because there are always people who want a good but cannot afford it. ii. occurs at the intersection of the supply and demand curves. iii. is the point where the price equals the quantity.

ii only; occurs at the intersection of the supply and demand curves.

You own a small store. Your cashier thinks you should raise prices to increase your total revenue and your customer thinks you should lower prices to increase your total revenue. The cashier thinks the price elasticity of demand is ________ and the customer believes the price elasticity of demand is ________.

inelastic; elastic

If the price of a good rises, then moving along a demand curve the percentage change in the quantity demanded will be

negative

Suppose the demand for rescue services in our national parks is perfectly inelastic. This fact would mean that a 31 percent increase in rescue fees leads to

no change in the quantity demanded

If the demand for the good is elastic, then

people substantially decrease the quantity of the good they buy if its price increases by a small percentage.

The income elasticity of demand for electricity is 1.90. Suppose the economy improves and incomes are expected to increase by 10 percent. This means that

power companies can expect to sell 19 percent more electricity

Products X, Y, and Z have price elasticities of 3.0, 0.80, and 1.0 respectively. Total revenue decreases if the price of

product Y falls

When there is a shortage of parking spaces at your college, the

quantity of parking spaces demanded is greater than the quantity of parking spaces supplied.

If there is a surplus of tacos, then the

quantity of tacos demanded is less than the quantity of tacos supplied.

The demand for oranges increases while the supply decreases. The equilibrium price of oranges ________, and the equilibrium quantity ________.

rises; perhaps changes but we can't say if it increases, decreases, or stays the same

If a 1 percent increase in the price of X increases the quantity demanded of Y by 2 percent, then X and Y are29

substitutes and the cross elasticity of demand equals 2.

Suppose the equilibrium price of oranges is $2.00 per pound. If the actual price is above the equilibrium price, a

surplus exists and the price falls to restore equilibrium

The price of coffee rose 40 percent and the quantity of coffee demanded fell by 20 percent. The quantity of doughnuts demanded also fell by 20 percent. From this information, we can conclude that

the cross elasticity demand between coffee and doughnuts is -0.5

Consider the market for camera film. If more people start using digital cameras, which do not require film,

the demand curve for film shifts leftward

The table above shows the situation in the gasoline market in Tulsa, Oklahoma. If the price of a gallon of gasoline is $2.25, then

the gasoline market in Tulsa is in equilibrium

If the supply of solar panels increases,

the price of solar panels decreases and the quantity increases.

The price elasticity of demand measures the extent to which the quantity demanded changes when

the price of the good changes

Suppose a local photographer increases his prices by 8 percent and quantity demanded decreases by the same percentage. This set of facts indicates that the demand for his services is

unit elastic

Perfectly inelastic demand means that consumers

will buy a certain quantity, regardless of price.

The graph illustrates the market for British pounds, the currency of the United Kingdom. As the number of buyers of pounds decreases and the number of sellers of pounds increases, the equilibrium price of a pound

will fall