Economy Chapter 19 Study Guide

In the long run, the supply curve

Is more elastic than it is in the short run

The demand curve for petroleum should be

More elastic in the long run than in the short run

Suppose that when the price of good X changes, the quantity of good Y demanded remains the same. The cross price elasticity of demand is

Zero

The income elasticity of demand for all goods taken together must be

+1

Suppose that when the price of a soft drink rises 10%, the quantity demanded of the soft drink falls 5%. Based on this information, what is the approximate absolute price elasticity of demand for soft drink?

0.5

Changes in technology over time will result in

A more elastic supply curve

When demand is elastic

A proportionately small change in price leads to a proportionately large change in quantity demanded

The price elasticity of demand is

Always negative, buy by convention, economists typically express the price elasticity of demand as an absolute value

Which of the following statements about demand and price elasticity of demand is TRUE

As the demand curve has a negative slope, the price elasticity of demand is negative

The income elasticity of demand

Can be positive, negative, or zero.

If the cross price elasticity of demand between two goods is negative, then the two goods are

Complements

Suppose that the cross price elasticity of demand between bagels and cream cheese is -1.45. This indicates that the two goods are

Complements

An decrease in total revenue will result if

Demand is inelastic and price decreases

An increase in total revenue will result if

Demand is inelastic and price increases

Total revenues reach a maximum when

Demand is unit-elastic

When quantity supplied is very responsive to a change in price, supply is

Elastic

Which of the following goods is most likely to have the lowest price elasticity

Gasoline

A perfectly elastic demand curve is

Horizontal

A consumer is willing and able to buy 1,000 units of a good at $10, but the consumer's quantity demanded falls to zero if the price rises even a fraction of a cent. The consumer's demand curve is

Horizontal and is perfectly elastic

The difference between price elasticity of demand and income elasticity of demand is that

Income elasticity refers to a horizontal shift of the demand curve while price elasticity demand refers to a movement along the demand curve

When demand is perfectly inelastic, an increase in price will

Increase total revenue

If the price of a god increases and the total revenue also increases, the good has a(n)

Inelastic demand

If the price of a good increases and the total revenue also increases, the good has a(n)

Inelastic demand

A good's price elasticity of demand can be calculated by using the formula of

Percentage change in quantity demanded divided by percentage change in price.

A demand relationship that is a vertical line up from the quantity axis is

Perfectly inelastic

If the quantity demanded of a product is the same for each possible price, demand is

Perfectly inelastic

If the quantity supplied stays the same no matter what the price is, then supply is

Perfectly inelastic

If there is no response in quantity demanded to a change in price, demand is

Perfectly inelastic

For most goods and services the income elasticity of demand is

Positive

Which of the following is FALSE regarding inelastic demand?

Price elasticity of demand is greater than 1(Ep > 1)

When demand is inelastic,

Quantity demanded is not very responsive to a change in price

When demand is elastic,

Quantity demanded is very responsive to a change in price

Suppose the absolute price elasticity of demand for newsletter subscriptions is 1.3. In order to increase the total revenues from subscriptions, the publishers should

Reduce the price of the newsletter

A perfectly elastic demand curve

Shows that a slight increase in price will reduce quantity demanded to zero.

If the cross price elasticity of demand between two goods is positive, then the two goods are

Subsitutes

A positive cross price elasticity of demand between two goods suggests that the goods are

Substitutes

If the cross price elasticity of demand between Los Angeles Lakers professional basketball tickets and Los Angeles Dodgers professional baseball tickets is positive, then the two goods are

Substitutes

Elastic demand implies

That a one percent increase in price results in a larger than one percent decrease in quantity demanded

Inelastic demand implies

That a one percent increases in price results in a smaller than one percent decreases in quantity demanded

The price elasticity of demand measures

The consumers' sensitivity to a price change

Which of the following would NOT affect a good's price elasticity of demand?

The cost of producing the good

If demand is perfectly elastic everywhere along the demand curve, then

The demand curve is horizontal

The income elasticity of demand is

The percentage change in demand divided by the percentage change in income

The price elasticity of demand shows

The proportionate amount by which the quantity demanded changes in response to a proportionate change in price

The price elasticity of supply measures

The responsiveness of quantity supplied to a change in price

The price elasticity of demand is a measure of

The responsiveness of the quantity demanded of a good to changes in the price of the good

If demand is unit-elastic throughout the demand curve, then total revenues are

The same for any price the firm changes

Other things being equal, demand is less elastic

The smaller the percentage of a total budget that a family spends on a good

The most important determinant of the elasticity of supply is

The time period firms have to adjust to the new price

The demand for diet soft drinks (as a group) is relatively inelastic because

There are few substitutes

When two goods are substitutes for each other, the cross price elasticity of demand

Will be positive

An increase in total revenue will result if

demand is elastic and price decreases

A measure of the responsiveness of demand to changes in income, all other things being constant, is

income elasticity of demand

We generally expect the price elasticity of supply to be

positive

The price elasticity of demand would most likely be the lowest for

salt

The price elasticity of demand along a vertical demand curve is

zero