ECON 2302-Exam 2

Cross-Price Elasticity of Demand

(% change Q) / (% change P).

If the price elasticity of supply is 1.5, and a price increase led to a 3% increase in quantity supplied, then the price increase is about

2.0%.

For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The market for the good is broadly defined.

Elasticity is

a measure of how much buyers and sellers respond to changes in market conditions.

When a tax is placed on the sellers of cell phones, the size of the cell phone market

and the effective price received by sellers both decrease.

An advance in farm technology that results in an increased market supply is

bad for farmers because total revenue will fall but good for consumers because prices for food will fall.

Less elastic leads to a

bigger tax burden.

When a tax is placed on the buyers of lemonade, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

If a tax is levied on the buyers of dog food, then

buyers and sellers will share the burden of the tax.

If demand is price inelastic, then

buyers do not respond much to a change in price.

A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve

downward by exactly $1.50.

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

elastic, and the demand curve will be horizontal.

Which of the following is likely to have the most price inelastic demand?

gasoline in the short run

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would

increase by 6%.

A tax levied on the sellers of blueberries

increases sellers' costs, reduces profits, and shifts the supply curve up.

If the elasticity is less than 0 it is a

inferior good or complements and shifts left.

A tax burden falls more heavily on the side of the market that

is more inelastic.

If the elasticity is greater than 0 it is a

normal good or substitutes and shifts right.

Demand is said to be inelastic if the

quantity demanded changes proportionately less than price.

More elastic leads to a

smaller tax burden.

When demand is perfectly inelastic, the demand curve will be

vertical, because buyers purchase the same amount as before whenever the price rises or falls.