MICRO Test 2
Price elasticity of demand is influenced by the... income spent on a good or service
proportion of
Cross-price elasticity of demand is a measure of the effect of a change in the...
price of one product on the quantity demanded of another
How do you calculate revenue?
Price x Quantity
Using absolute values, in the elastic range of the demand curve:
% change in the quantity demanded > % change in price
When the price of candy bars increased from $0.45 to $0.55, the quantity demanded changed from 21,000 per day to 19,000 per day. In this price range, the price elasticity of demand coefficient (based on the midpoint formula) for candy bars is
-0.5
What does the supply curve look like in the immediate time period?
It is a vertical line
What is the midpoint formula?
M= (x1+x2/2, y1+y2/2)
Which of the following statements is true of a linear demand curve?
When going from high prices to low prices, demand becomes more inelastic
Income elasticity
a measure of how responsive demand is to a change in consumer income
Define price elasticity
a measure of how responsive quantity supplied is to a change in price
When interpreting the Ed value as either elastic or inelastic, we look at the
absolute value of the Ed coefficient (dropping the negative sign)
The cross-price elasticity of demand between product X and product Y is -1.2. It can be inferred that X and Y are
complements
Which of the following uses negative and positive values to asses whether goods are substitutes or complements?
cross-price elasticity
If Es= 4.25, the supply is:
elastic
If IEdI = .15, the demand is:
inelastic
When there are few substitutes for a good or service, demand tends to be relatively more
inelastic
The greater the change in price the (more or less) reliable elasticity estimate is going to be
less
Determine whether the income elasticity of demand is likely to be positive or negative for simple meals at home
negative
The price elasticity of demand is a negative number because
of the law of demand
What does the elasticity calculation use?
percentage change in price and quantity
Slope uses changes in...
price and quantity
Answer the next question based on information in the following table. Product Percentage Change in Income Percentage Change in Quantity Demanded W −1 −1 X +6 +3 Y −1 +1 Z +4 +8 Which product would be an inferior good?
product Y
Price elasticity of supply is a measure of how responsive
quantity supplied is to a change in price
The demand schedules for such products as eggs, bread, and electricity tend to be
relatively inelastic
Demand is generally
relatively more elastic in the long run than in the short run
The price elasticity of supply measures how
responsive the quantity supplied of X is to changes in the price of X
Which would have a relatively more elastic demand curve: electricity or restaurant meals?
restaurant meals
The slope of a linear demand curve is
the change in price divided by the change in quantity demanded
What are the time periods associated with a set of supply curves?
the immediate period, the short run, and the long run
Supply is perfectly inelastic when the value of the price elasticity of supply is equal to
zero
Use the data in the table below to answer the following question. Price Quantity Demanded $20 12 18 17 16 20 14 24 12 30 10 36 8 40 6 44 4 48 The price elasticity of demand (based on the midpoint formula) when price increases from $10 to $12 is
-1
Demand is said to be inelastic when
a reduction in price results in a decrease in total revenue
Determine whether the income elasticity of demand is likely to be positive or negative for airline tickets
positive
Economists distinguish among the immediate period, the short run, and the long run by noting that
supply is most elastic in the long run and perfectly inelastic in the immediate period
What is the formula for price elasticity of demand?
...
The percentage change in the quantity demanded of one good divided by the percentage change in the price of another good is the...
cross-price elasticity of demand
A price elasticity of demand of -0.50 means that if the price increased by 1%, the quantity demanded will
decrease by .50%
Economists find elasticity useful because it...
has no units attached to it and can be used to compare elasticities across different goods and countries
The time period in which producers cannot increase their use of economic resources to increase quantity supplied is the
immediate period
Answer the next question on the basis of the following demand schedule. Price Quantity Demanded $6 1 5 2 4 3 3 4 2 5 1 6 The price elasticity of demand is unit-elastic (based on the midpoint formula)
in the $4 to $3 price range only
A price elasticity of demand of -0.75 means that if the price decreases by 10%, the quantity demanded will ____ by ____ %.
increase, 12.5
What type of good has a direct relationship between the demand for the good and income?
normal good
Price elasticity of supply is a positive number because
of the law of supply
With cross-price elasticity of demand:
positive value indicates substitutes, and negative value indicates complements
Which would have a relatively more elastic demand curve: basic cable television or premium cable channels?
premium cable channels
The... of a linear demand curve is constant along the curve
slope
A relationship exists between...
slope and elasticity, but they are not the same thing
If the price of good A increases and generates an increase in the demand for good B, then the two goods are
subsitutes
The more time passes,
the more elastic the demand for a good becomes
When consumers have more... to adjust, demand becomes relatively more elastic
time