Micro Chapter 5 Tuan Lee

Suppose the price of potato chips decreases from $1.45 to $1.25 and, as a result, the quantity of potato chips demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for potato chips in the given price range is

0.64.

Suppose the price elasticity of supply for candles is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for candles causes the price of candles to increase by 36%, then the quantity supplied of candles will increase by about

10.8% in the short run and 43.2% in the long run.

If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a

48 percent increase in the quantity demanded

For a particular good, a 10 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The relevant time horizon is long

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

a 13.33 percent increase in the price of the good

If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

a 5 percent increase in the price of the good

Elasticity is

a measure of how much buyers and sellers respond to changes in market conditions.

Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding other factors constant, it follows that Shelley

considers designer jeans to be a normal good.

If the quantity demanded of a good responds only slightly to changes in price of that good, then

demand is said to be inelastic

For a good that is a necessity,

demand tends to be inelastic.

Holding all other factors constant and using the midpoint method, if a calculator manufacturer increases production from 40 to 50 units when price increases by 20 percent, then supply is

elastic, since the price elasticity of supply is equal to 1.1.

When quantity demanded responds strongly to changes in price, demand is said to be

elastic.

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

elastic.

The price elasticity of demand for eggs

is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs.

Demand is inelastic if the price elasticity of demand is

less than 1.

The supply of a good will be more elastic, the

longer the time period being considered.

The price elasticity of demand measures how much

quantity demanded responds to a change in price.

Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue, and your job is on the line. If the demand for sandwiches is elastic, you

should decrease the price of sandwiches

Generally, a firm is more willing and able to increase quantity supplied in response to a price change when

the relevant time period is long rather than short.