micro ch 4

Firms are indifferent to changing prices when the price elasticity of demand is

unitary elastic

If a firm wishes to maximize its total revenue it should price its product where the price elasticity of demand is

unitary elastic

Lee says that he will always spend $20 a week on lattes. Lee's demand for lattes is price

unitary elastic

When can a firm lower prices and still increase revenue?

when the demand is elastic

If the percentage change in the quantity consumed of pizza is 6% and the percentage change in income is 2%, what is the income elasticity of demand for pizza?

+3

If the percentage change in quantity demanded of Good B is 2% and the percentage change in the price of Good A is -10%, what is the cross-price elasticity of demand?

-0.20

If the income elasticity of demand for noodles is -2 and the percentage change in the quantity consumed is 5%, what is the percentage change in income?

-2.5%

A shopping mall owner is given a list of income elasticity of demand values. Which one represents a necessity?

0.5

When the price of a sandwich increases from $2.50 to $2.75, the quantity demanded of lawn fertilizer is unchanged. The cross-price elasticity of demand between sandwiches and fertilizer is ________ because sandwiches and fertilizer are ________.

0; unrelated

When the price of an eraser increases from $1.50 to $2.50, the quantity demanded of pencils is unchanged. The cross-price elasticity of demand between erasers and pencils is ________ because erasers and pencils are ________.

0; unrelated

Firms supplying twisty-ties decrease the quantity supplied by 10% when the price decreases by 5%. The price elasticity of supply for twisty-ties is ________.

2.0

Demand for which of the following goods or services is likely to be the MOST elastic in warm weather?

a pair of Rainbow brand leather flip-flop beach sandals

The price elasticity of demand is

almost always negative

As price elasticity of supply becomes more elastic over time, the overall shape of the supply curve

becomes more horizontal.

As we move downward along the demand curve, the price elasticity of demand

becomes more inelastic

Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand?

coffee and cream

If the cross-price elasticity of demand is -3, Goods A and B are

complements

When two goods are unrelated then

cross-price elasticity of demand will be zero.

The price elasticity of supply is

the percentage change in the quantity supplied divided by the percentage change in price.

When the price elasticity of demand is - 0.36, a decrease in price will

decrease total revenue

When the price of softballs is high, a ________ in price will raise total revenue. When the price is low, the seller should ________ the price to increase total revenue

decrease; raise

When the price of softballs is high, a ________ in price will raise total revenue. When the price is low, the seller should ________ the price to increase total revenue.

decrease; raise

At higher prices, the price elasticity of demand is likely to be ________, whereas it is likely to be ________ at lower prices.

elastic; inelastic

When Leticia decreases her price of earrings from $17 to $15, she finds that her sales increase from 60 to 70. She faces ________ demand for her product, and this price change will ________ her total revenue.

elastic; raise

We would expect to see a positive cross-price elasticity between

ice cream and frozen yogurt

When would oil producers see the largest percentage decline in the quantity demanded for oil due to an increase in the price of oil today

in 15 years

The responsiveness of demand to changes in income while holding the good's relative price constant is the

income inelasticity of demand

When the total revenue and price both move in the same direction (are directly related), demand is

inelastic

When Kelsey decreases her price of lipstick from $7 to $5, she finds that her sales increase from 6 to 7. She faces ________ demand for her product, and this price change will ________ her total revenue.

inelastic; lower

If the income elasticity of demand is -2.2, the good will be a(n) ________ good

inferior

If the income elasticity of demand is -2.2, the good will be a(n) ________ good.

inferior

When the price elasticity of demand is elastic, a consumer

is relatively responsive to a change in price

When incomes fall by 20%, the quantity demanded of specialty baked goods falls by 40%. As a result, specialty baked goods are

luxuries

If the income elasticity of demand for electric cars is +1.3, you know that electric cars are a(n) ________.

luxury

If the income elasticity of demand for laptops is +2.5, you know that laptops are a(n) ________ good.

luxury

If the income elasticity of demand is +1.4, the good will be a(n) ________ good.

luxury

When Noelle received a promotion at work, her income rose by 30%. The income elasticity of demand for steak was found to be 1.5. For her, steak is a(n)

luxury good

A firm knows that Seneca's income elasticity of demand for hair ties is 5; for Janelle, it is 0.2. A firm can reason that a hair tie is a(n) ________ good for Seneca while it is a(n) ________ good for Janelle.

luxury; necessity

What good is most likely to have an income elasticity of demand equal to 0.3?

medication

Income elasticity of demand for pedicures is found to be 2.7. This service is a(n)

normal good and a luxury good

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

pancakes and waffles

Mona says that she will always spend $7 a week on boba tea. Mona's demand for boba tea is

prefectly elastic

Use the following scenario to answer the next two questions.Dairy Wishes, a local ice cream store, finds that it sells out of ice cream sandwiches at the current price of $1. It raises the price to increase its revenues and finds that no one buys ice cream sandwiches anymore. The demand for ice cream sandwiches is

prefectly elastic

The local National Hockey League (NHL) team decides to lower its ticket prices to attract more fans and to increase its revenues from ticket sales. It is hoping that the

price elasticity of demand is relatively elastic.

The income elasticity of demand for a good measures the responsiveness of ________ to a change in ________.

quantity demanded; incom

Winged Treasures is a specialty store that sells butterfly ornaments. The owner wants to increase her total revenue and knows that the price elasticity of demand for her product is -0.4. What should she do to her price

raise it until the price elasricity of demand is equal to -10

Sky Breath Music is a specialty store that sells wind chimes. The owner wants to increase her total revenue and knows that the price elasticity of demand for her product is -0.4. What should she do to her price?

raise it until the price elasticity of demand is equal to -1.0

Winged Treasures is a specialty store that sells butterfly ornaments. The owner wants to increase her total revenue and knows that the price elasticity of demand for her product is -0.4. What should she do to her price?

raise it until the price elasticity of demand is equal to -1.0

While there are many pizza places in Kutztown, Pappy's Pizza is known for its distinctive deep-dish pizza with an almost pie-like crust, whereas Momma's Pizza is comparable to many other restaurants. Pappy's is likely to find that it can ________ prices to increase total revenue, and Momma's must ________ prices to increase total revenue.

raise; lower

If the price elasticity of supply is 1.5, we know that supply is

relatively elastic

The owner of a commercial orchard finds that he can easily switch between herbicides and mowing as a way of keeping weeds under control. Depending on the availability of herbicide and workers, he may use either method, or both. This ability to choose tends to make the price elasticity of the supply of fruit he produces

relatively elastic

When buyers are relatively responsive to a price change then we say the demand for that product is

relatively elastic

When the price of scooters drops by 5%, the quantity demanded changes by 7%. We know that the price elasticity of demand for scooters is

relatively elastic

Rielle's Custom Rugs produces custom-woven rugs that take approximately six months to make. The price elasticity of supply for these rugs in the short-term is

relatively inelastic

Consider the market for pencils. If the popularity of digital tablets and electronic pens increases and the price of pencils declines, then the change in the quantity demanded for pencils will be

relatively large

When Georgiou's Gyros prices its Greek gyros wraps at $6.00, it sells 75 per day. Georgiou's lowers the price to $5.50 and sells 100 per day. Georgiou's total revenue ________ because the price elasticity of demand for gyros is ________.

rose; elastic

If the cross-price elasticity of demand is 4, Goods A and B are

substitutes

Income elasticity of demand is defined as

the percentage change in quantity demanded divided by percentage change in income.