Micro 5a

Price elasticity of demand

% change in P / % change in QD

price elasticity of supply

% change in P / % change in QS

cross-price elasticity

% change in quantity of good a / % change in price of good b

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about

.1.2, and X and Y are substitutes.

If the price elasticity of demand for a good is 6, then a 3 percent decrease in price results in A. an 18 percent increase in the quantity demanded. B. a 2 percent increase in the quantity demanded. C. a 20 percent increase in the quantity demanded. D. a 1.8 percent increase in the quantity demanded

A

Which of the following is likely to have the most price inelastic demand? A. filet mignon B. lattés C. milk D. Grey Goose® vodka

C

A perfectly elastic demand implies that A. quantity demanded and price change by the same percent as we move along the demand curve. B. buyers will not respond to any change in price. C. price will rise by an infinite amount when there is a change in quantity demanded. D. any rise in price above that represented by the demand curve will result in a quantity demanded of zero.

D

At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about A. 1.00. B. 2.0. C. 1.23. D. 0.81.

D

Demand is inelastic if the price elasticity of demand is A. equal to 1. B. greater than 1. C. equal to 0. D. less than 1.

D

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is A. unit elastic. B. inelastic. C. perfectly inelastic. D. elastic.

D

ou have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a bakery. The first step you would take would be to A. increase the price of every loaf of bread in the store. B. look for ways to cut costs and increase profit for the bakery. C. determine the price elasticity of supply for the bakery's products. D. determine the price elasticity of demand for the bakery's products.

D

The value of the price elasticity of demand for a good will be relatively large when

When a good is a luxury

In the market for oil in the short run, demand

and supply are both inelastic/ opposite for long run

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers.

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be

inelastic