Elasticity (Ag Economics)

Define Income elasticity of Demand

A measure of the responsiveness of quantity demanded for good, to the change in income of the consumer of the good

Write the formula to calculate the Coefficient for Cross-price Elasticity of Demand

(% change in quantity demanded of good A) / (%change in price of good B)

income elasticity of demand definition

The income elasticity of demand is defined as a measure of the responsiveness in quantity demanded of a good to changes in the income of the consumer of that good.

are compliments a positive or negative number?

negative

is normal or interior goods greater than 0?

normal

price elasticity of supply equation

Es=(%∆Qs)/(%∆P)= (|Q2 - Q1 | )/ (Q(1+) Q2)/2) ) / (|P2 - P1 | )/ (P(1+) P2)/2)

outcomes: Es>1 Es<1 Es=1 Es=∞ Es=0

Es>1 (elastic supply) Es<1 (inelastic supply) Es=1 (unitary elastic supply) Es=∞ (perfectly elastic supply) Es=0 (perfectly inelastic supply)

outcomes Ey<0 Ey>0 Ey>1 Ey<1 Ey=0

Ey<0 (inferior good) Ey>0 (normal good) Ey>1 (Normal/luxury) Ey<1 (Normal/ necessity) Ey=0 (income neutral good)

income elasticity of demand equation

Ey=(%∆Qd)/(%∆Py )= (Q2-Q1 )/ (Q(1+) Q2)/2) / (P2-P1 )/ (P(1+) P2)/2)

The quantity demanded for product A increases from 4 to 6 units as the price of product B increases from $10 to $20. Use the midpoint formula to calculate the coefficient for the cross price elasticity of demand and identify the type of relationship between the two products.

((6-4)/ ((4+6)/2)) _________________ = 0.6 ((20-10)/((20+10)/2)) They are substitutes

If income elasticity of demand for food is 1.33, it follows that... -A 10% decline in income lowers the quantity demanded of food by 13.3% -If income rises by 10%, consumption of food falls by 13.3% -A 1% fall in the price of food increases the quantity demanded of food by 13.3% -A 1% increase in the price of food decreases the quantity demanded of food by 1.33% -None of the above

-A 10% decline in income lowers the quantity demanded of food by 13.3%

Assuming the demand for their products is inelastic, farmers (as a group) have an incentive to... -Agree among themselves to decrease the supply of what they sell -Spend at least 10% of their budget to advertise their products -Agree among themselves to increase the supply of what they sell -B and C

-Agree among themselves to decrease the supply of what they sell

Refer to exhibit 4. Assume that E1 represents the initial equilibrium in the market for grain X. If all the farmers agree to restrict production and abide by the agreement... -The price of X raises -The equilibrium quantity decreases -Total revenue increases if the demand curve is inelastic between E1 and E3 -All of the above

-All of the above

You and your roommate are eating a pizza and have consumed all but the last slice. Your roommate claims to be hungrier than you and should get the last slice. Your roommate has made... -A diamond-water paradox -An interpersonal utility comparison -A correct statement -A marginal error

-An interpersonal utility comparison

If market demand is inelastic and supply is subject to severe shifts from season to season, it follows that... -Price changes are likely to be small -Price changes are likely to be large -Total revenue is likely to be constant over time -Total revenue is likely to be highly volatile -B and D

-B and D

Refer to exhibit 2. A major change in weather conditions favorable to production of X will shift the supply curve for X from its original position. The consequenct change in price and total revenue would be less sharp if the demand curve for X is _____ because it is ______ over the relevant region. -D1, more inelastic than D2 -D1, more elastic than D2 -D2, more elastic than D1 -D2, more inelastic then D1

-D2, more elastic than D1

Stating that income elasticity of demand for potatoes equals 0.15 is equivalent to stating that if income... -Decreases by 10%, potato purchase decrease by 1.5% -Increases by 10%, potato purchases increase by 1.5% -Decreases by 1.5%, potato purchases decrease by 10% -Increases by 1.5%, potato purchases decrease by 10% -None of the above

-Decreases by 10%, potato purchase decrease by 1.5%

Refer to exhibit 3. Let E1 represent the initial equilibrium in the market for X. A combination of population growth and an increase in agricultural productivity will likely result in a new equilibrium at... -E2 -E3 -Either E4 or E5 -E5 only

-Either E4 or E5

Which of the following is true? -It is possible for total utility to rise as marginal utility falls -Marginal utility is the same as total utility -As marginal utility falls, total utility always falls -A and C

-It is possible for total utility to rise as marginal utility falls

Income elasticity of demand for food is... -Less than 0, but greater than 1 -More than 0, but less than 1 -More than 0 -More than 2, but greater than 1

-More than 0, but less than 1

Suppose you just finished your 3rd plate of Thanksgiving dinner and it yielded zero units of additional satisfaction. Should you go back for more? -Why not? -No way. You could get negative utility from the 4th plate -Yes or no. it won't make a difference because your utility has already peaked -Yes. if you receive 0 satisfaction from the 3rd, then the law of diminishing marginal utility in not working in this case

-No way. You could get negative utility from the 4th plate

If real income raises in the economy and, at the same time, productivity in the agriculture sector rises too, then it follows that the demand for food will... -Rise (assuming that the income elasticity of demand for food is greater than 1) and the supply of food will remain constant -Rise (assuming that the income elasticity of demand for food is greater than 0) and the supply of food will increase too -Fall (assuming that the income elasticity of demand for food is greater than 1) and the supply of food will fall too -Fall (assuming that the income elasticity of demand for food is equal to 1) and the supply of food will raise too None of the above

-Rise (assuming that the income elasticity of demand for food is greater than 0) and the supply of food will increase too

Refer to exhibit 1. Low price elasticity of demand for corn coupled with unpredictable weather makes both prices and total revenue in the market for corn extremely volatile. Which of the supply curves would result in the least volatility? -S3 (horizontal) -S2 (angled) -S1 (vertical) -The changes are not dependent upon elasticity of supply

-S1 (vertical)

Jack says that his 5th game of chess gave him greater utility than his first, and therefore the law of diminishing marginal utility does not hold. An economist who believes that marginal utility definitely and always declines with consumption of equal successive units of a good will likely say... -The 5th game of chess is a different game than the first game -There are always exception to the law of diminishing marginal utility -The law of diminishing utility does not apply to board games -A or B -A or C

-The 5th game of chess is a different game than the first game

Which of the following statements are true? -The less you have of any good, the less you would be willing to pay for one more unit of it -The less you have of any good, the more you would be willing to pay for one more unit of it -The amount you have of any one good does not influence the price you would be willing to pay for it -None of the above

-The less you have of any good, the more you would be willing to pay for one more unit of it

Dan is consuming 10 cokes and 5 slices of pizza per week such that the marginal utility of the tenth coke is 12 utils and that of the 5th slice of pizza is also 12 utils. How should Dan redirect his purchases so as to attain consumer equilibrium? -He should buy more pizza slices and less coke -He should buy less pizza slices and more coke -He is currently obtaining consumer equilibrium and should not redirect his purchases -He could gain more satisfaction by buying less of both and more of something else -There is not enough information to answer this question

-There is not enough information to answer this question

outcomes Ec<0 Ec>0 Ec=0

Ec<0 (commentary goods) Ec>0 (substitutes) Ec=0 (unrelated goods)

Cross-Price Elasticity of Demand equation

Ec=(%∆Qd GoodA)/(%∆P Good B) )= (Q2-Q1 )/ (Q(1+) Q2)/2) ) / (P2-P1 )/ (P(1+) P2)/2)

own-price elasticity of demand equation

Ed=(%∆Qd)/(%∆P)= (|Q2 - Q | )/ (Q1 + Q2)/2) ) / (|P_2 - P1 | )/ (P1 + P2)/2) )

outcomes: Ed>1 Ed<1 Ed=1 Ed=∞ Ed=0

Ed>1 (elastic) Ed<1 (inelastic) Ed=1 (unitary elastic) Ed=∞ (Perfectly elastic) Ed=0 (perfectly inelastic)

Define own-price elasticity of demand definition

The "own-price elasticity of demand" or simply "price elasticity of demand" is a measure of the responsiveness of quantity demanded of a good to changes in price of the same good.

Cross-Price Elasticity of Demand definition

The cross-price elasticity of demand is defined as a measure of the responsiveness in quantity demanded of one good to changes in the price of another good

price elasticity of supply definition

The price elasticity of supply is defined as a measure of the responsiveness of quantity supplied of a good to changes in price of that same good.

Define Marginal Rate of Substitution

The quantity of one good that must be given up as the consumption of the other good increases by one unit, with total utility remaining constant