Econ module 3

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?

2.5 percent

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil?

A twofold increase in the price of pens and a threefold increase in the price of pencils

T or F: An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant.

False

T or F: The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in the price of a complementary product.

False

Which of the following could explain why the demand for table salt is inelastic?

Households devote a very small portion of their income to salt purchases.

Which of the following statements is true? -If the price of a good is lowered and total revenue decreases, demand is elastic. -If the price of a good is lowered and total revenue increases, demand is inelastic. -If the price of a good is raised and total revenue does not change, demand is perfectly elastic. -If the price of a good is raised and total revenue increases, demand is inelastic.

If the price of a good is raised and total revenue increases, demand is inelastic.

Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?

Sales revenue decreased.

Which of the following describes the substitution effect of a price change?

The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant?

The demand curve shifts to the left.

In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?

The demand curve shifts to the right

f a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is

a luxury

An increase in the demand for a good is represented by:

a right shift to a new demand curve.

Holding everything else constant, a decrease in the price of bicycles will result in

an increase in the quantity of bicycles demanded.

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.

budget constraint

We can derive the market demand curve for gold earrings

by adding horizontally the individual demand curves of each gold earring consumer.

If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand:

equal to 1

A good is said to have a relatively elastic demand if the value of price elasticity is:

greater than 1

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:

he opportunity cost of buying sweaters increases.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price.

price elasticity of demand measures

how responsive quantity demanded is to a change in price.

The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00. Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant. Toni's actions are explained by which of the following?

income and substitution effects

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be

inelastic

Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is

inelastic

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is

inelastic

A perfectly elastic demand curve:

is parallel to the quantity axis.

Willingness to pay:

is the highest price that a buyer is willing and able to pay for a unit of good.

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:

its price

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one

Which of the following goods is likely to have the lowest price elasticity of demand? -Decorative flowers -Potato chips -Chocolates -Life-saving drugs

life saving drugs

The demand by all the consumers of a given good or service is the ________ for the good or service.

market demand

The larger the share of a good in a consumer's budget, holding everything else constant, the

more price elastic is a consumer's demand.

Cross-price elasticity of demand is calculated as the

percentage change in quantity demanded of one good divided by percentage change in price of a different good

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

pivot leftward (pivot in) along the vertical axis.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

pivot rightward (pivot out) along the horizontal axis.

A decrease in the price of either one or the other good will cause a consumer's budget constraint to:

pivot rightward (pivot out).

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:

pivots leftward (pivot in) without a change in the intercept on the horizontal axis.

Which of the following goods is likely to have the highest price elasticity of demand? -Pizza -Gasoline -Salt -Life-saving drugs

pizza

Total revenue equals

price per unit times quantity sold

By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.

price; quantity; price

The income effect of an increase in the price of salmon

refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant.

A budget constraint

refers to the limited amount of income available to consumers to spend on goods and services.

If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is

relatively elastic

If a firm raised its price and discovered that its total revenue fell, then the demand for its product is

relatively elastic

Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone

strawberries and whipped cream are complements.

The quantity demanded of a good is:

the amount of a good that buyers are willing to purchase at a given market price.

The income effect of an increase in the price of peaches is

the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

If the price of a good increases, ________.

the consumer surplus decreases

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

the demand for aspirin is inelastic.

The law of demand implies, holding everything else constant, that as the price of bagels increases,

the quantity of bagels demanded will decrease.

Suppose a decrease in the supply of wheat results in an increase in revenue. This indicates that

the resulting increase in price is proportionately greater than decrease in quantity sold.

If the market for a product is broadly defined, then

there are few substitutes for the product and the demand for the product is relatively inelastic.

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

will decrease by 45 percent

The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market. (bottles). (bottles). (bottles) price. sandras davids marys $ per bottle. demand. demand. demand $8. 2 _____. 10 $6. 14. 15. 18 $4 __. 23. 24 $2. 24. 27. 28 Refer to the table above. If the market price of wine is $8/bottle, and the market demand for wine is 19 bottles, David's consumption of wine is:

7 bottles sandras 2 bottles plus marys 10 bottles equal 12 bottles 19 bottles minus 12 bottles is 7 which is davids bottles

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

A 1 percent increase in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Which of the following pairs of goods is most likely to have a positive cross-price elasticity?

A privately-owned car and public transportation

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true? -It is perfectly elastic at very high prices and perfectly inelastic at very low prices. -It is inelastic at high prices and elastic at low prices. -It is elastic at high prices and inelastic at low prices. -It is unit elastic throughout the demand curve.

It is elastic at high prices and inelastic at low prices.

Which of the following statements is true? -Total revenue will equal zero when the demand for a product is unit elastic. -When a firm lowers its price its total revenue may either increase or decrease. -Whenever a firm increases its quantity sold its revenue will increase. -Whenever a firm raises its price its total revenue will increase.

When a firm lowers its price its total revenue may either increase or decrease.

A change in the slope of a budget constraint indicates:

a change in the price of either good that causes a change in the opportunity cost.

A budget constraint is a straight line because:

a consumer faces a fixed price of both goods that do not change with changes in consumption.

Which of the following factors is likely to lead to an increase in the quantity demanded of pens?

a fall in the price of pens

Income elasticity measures how a good's quantity demanded responds to

change in buyers income

________ is the difference between the willingness to pay and the price paid for a good.

consumer surplus

In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ________ and get a ________.

cross-price elasticity; positive number

The ________ plots the relationship between prices and the quantity that buyers are willing to purchase.

demand curve

The demand curve for most goods is normally:

downward sloping.

A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is

elastic

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

elastic

Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price.

elasticity

When demand is elastic, a fall in price causes total revenue to rise because

the increase in quantity sold is large enough to offset the lower price.

The slope of a demand curve is not used to measure the price elasticity of demand because

the measurement of slope is sensitive to the units chosen for price and quantity.

If the demand for a steak is unit elastic, then

the percentage change in quantity demanded is equal to the percentage change in price.

A change in all of the following variables will change the market demand for a product except: -the price of product -tastes -income -population and demographics

the price of a product