Economics Chapter 5

If supply is perfectly elastic, the supply curve is:

horizontal

Luxury goods are:

income elastic

Elasticity is always _____.

independent of the units of measurement for price and quantity

Figure 5.3 shows a linear demand curve. Between points C and D, the demand is:

inelastic

Demand for a necessity, such as food, is:

both income and price inelastic.

inelastic demand/supply

change in p has relatively little effect on quantity demanded/supplied (%change in q<%change in p), lies between 0 & 1

elastic demand/supply

change in price has a relatively large effect on quantity demanded/supplied (% change in quantity >%change in price

A good that takes up a very large percentage of a consumer's budget will tend to have:

an elastic demand

Linear demand curve

constant slope demand becomes less elastic as we move down the curve.

perfectly elastic demand/supply curve

consumers demand all that is offered at said price, but anything above it will not be demanded. (horizontal line, and price raise of demand and price lowering of supply would make quantity 0)elasticity=infinity

If city officials expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is _____.

inelastic

lower half of linear demand curve

inelastic

price elasticity of demand

measures how responsive quantity demanded is to a price change (=%change in quantity/%change in price)

inferior goods

negative income elasticity

An inferior good is:

one that consumers buy less of as their income rises

normal goods

positive income elasticity

perfectly inelastic demand/supply curve

price is no object (vertical line, and change in price has no effect on quantity demanded or supplied)Elasticity=0

elasticity

responsiveness

income elasticity of demand

responsiveness of demand to change in consumer income, % change in demand / % change in income

The price elasticity of demand helps determine the effect of price changes on a firm's:

revenue

Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive value

true

If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.

true

Substitutes are pairs of goods that have a positive cross-price elasticity of demand.

true

The cross-price elasticity of demand is used to determine whether:

two products are substitutes or complements

mid-unit linear demand curve

unit elastic

cross-price elasticity demand

% change in the demand for one good/ % change of a price in another good

unit-elastic demand/supply

%change in price is equal to percent change in quantity

Figure 5.10 shows two upward-sloping linear supply curves that pass through the origin. The price elasticity of supply between $20 and $40 on the supply curve S' is _____.

1

Figure 5.3 shows a linear demand curve. As you move from point A to point B along the demand curve, total revenue _____ and the demand is _____.

Increases; elastic

For which of the following goods is the value of income elasticity most likely to be negative?

Macaroni and cheese

Which of the following goods will have a higher price elasticity of demand?

a good with many substitutes

As the economy recovers from a recession, we should expect that the:

demand for inferior goods will fall and the demand for normal goods will rise

A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if _____.

demand is inelastic

A university administration's decision to raise tuition in order to increase revenue will be successful if:

demand is inelastic

upper half of linear demand curve

elastic

constant elasticity demand curve

elasticity value is unchanged

If demand is elastic, a decrease in price leads to a decrease in total revenue.

false

unit-elastic demand/supply curve

straight line, percent change in price is equal to the percent change in quantity demanded/supplied

The percentage change in the demand for film divided by the percentage change in the price of cameras indicates:

the cross-price elasticity of demand between film and cameras

If an increase in the price of peanut butter causes a decline in the demand for jelly, then:

the goods are complements

The price elasticity of demand for milk when quantity is measured in gallons will be _____ the price elasticity when quantity is measured in quarts.

the same as

Suppose the price elasticity of demand for your economics textbook is −1. If the publisher raises the price by 5 percent:

total revenue will not change

are price and quantity inversely related?

yes

does demand/supply become more elastic over time?

yes