ECON CHP 6

Which of the following is true about what happens to the quantity demanded of an inferior good?

It falls when income increases.

What is true about quantity demanded if a good is considered a necessity?

It is not very responsive to changes in income.

If we find that the price elasticity of demand for hamburgers is -1.3 while the price elasticity of demand for textbooks is -0.6, which of the following can we say is true?

The demand for hamburgers is more elastic than the demand for textbooks.

Which of the following is a true statement?

The fewer substitutes available for a product, the greater the price elasticity of demand. The more time that passes, the more inelastic the demand for a product becomes. The demand curve for a luxury is less elastic than the demand curve for a necessity. **The more narrowly defined a product is, the larger the price elasticity of demand.

Which of the following is a true statement?

The more substitutes available for a product, the greater the absolute value of the price elasticity of demand. The more time that passes, the more elastic the demand for a product becomes. The demand curve for a luxury is more elastic than the demand curve for a necessity. **All of the above are true.

What happens when the quantity demanded is very responsive to changes in price?

The percentage change in quantity demanded will be greater than the percentage change in price.

Which of the following is true if quantity demanded is not very responsive to price?

The percentage change in quantity demanded will be less than the percentage change in price. The price elasticity of demand will be less than 1 in absolute value. Demand is inelastic. **All of the above are true.

When the percentage change in quantity demanded is greater than the percentage change in price, which of the following is true?

The price elasticity of demand will be greater than 1 in absolute value.

Which of the following statements about the slope and the price elasticity of demand is correct?

The slope is calculated using changes in quantity and price, whereas elasticity is calculated using percentage changes.

Which of the following is true about the value of the price elasticity of demand?

The value is always negative.

When demand is inelastic, what is the relationship between price and total revenue?

They move in the same direction.

When demand is elastic, how will an increase in price affect total revenue?

Total revenue will fall.

Which of the following would occur when calculating price elasticity between two points on a demand curve if we are not using the midpoint formula?

We would get a different value for price increases than for price decreases.

If demand is perfectly elastic, then what is the impact of an increase in price?

a decrease in quantity demanded to zero

What is the effect of a cut in price when demand is inelastic?

a decrease in total revenue

Fill in the blanks: An increase in the price of a complement for DVDs will lead to____in the quantity demanded of DVDs, so the cross-price elasticity of demand will be____

a decrease; negative

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

a luxury

If the quantity demanded of a good increases as income increases, then that good must be which of the following?

a normal good

Fill in the blanks: An increase in the price of a substitute for iPods will lead to___in quantity demanded of iPods, so the cross-price elasticity of demand will be___.

an increase; positive

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

an inferior good

Who benefits from the concept of elasticity?

both business managers and policymakers

How is the responsiveness of the quantity demanded to a change in price measured?

by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price

How do economists avoid confusion over units in the computation of elasticity?

by using percentage changes rather than simple differences

If Amazon.com raises its prices by 10 percent and, as a result, the quantity of books demanded on Barnesandnoble.com increases by 35 percent, what do consumers consider the two Web sites to be?

close substitutes

Which of the following measures a relationship between the quantity of one good and the price of another good?

cross-price elasticity

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

elastic

The price elasticity of demand for a particular brand of raisin bran is, in absolute value,

larger than the price elasticity of demand for all breakfast cereals.

Sarah spends 2% of her weekly budget on chewing gum, and she spends 50% of her weekly budget on books. All else equal, we would expect her demand for chewing gum to be

less elastic than her demand for books.

What is the name given to the responsiveness of the quantity supplied of a good to a change in its price?

price elasticity of supply

Which of the following does the midpoint formula use to compute elasticity?

the averages of the initial and final quantity and the initial and final price

If you know the value for price elasticity of demand, then which of the following can you compute?

the effect of a price change on the quantity demanded

What is total revenue?

the total amount of funds a firm receives from selling a good or service an amount calculated by multiplying price per unit by the number of units sold an amount that increases when price increases if demand is inelastic **all of the above

What do economists use the concept of elasticity for?

to measure how one economic variable responds to changes in another economic variable

When is a change in price exactly offset by a proportional change in quantity demanded, leaving revenue unaffected?

when demand is unit elastic

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

zero

When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?

zero

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

−1.25.