Microeconomics Chapter 5

The price elasticity of demand measures the:

the responsiveness of the quantity demanded to changes in price

If cola and iced tea are good substitutes for consumers, then it is likely that:

their cross-price elasticities are greater than zero.

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:

total revenue will decrease

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

4.25

When demand is inelastic

consumers are not very responsive to changes in price.

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:

cross-price elasticity of demand for soda is -3

A price cut will increase the total revenue a firm receives if the demand for it's product is

elastic

Supply is said to be when the quantity supplied is very responsive to changes in price.

elastic

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as .

elastic

Youth smoking seems to be more than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price

elastic

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:

fall and the quantity to stay the same

A perfectly elastic supply curve is:

horizontal

If the demand curve is perfectly elastic, then an increase in supply will

increase the quantity changed but result in no change in the price.

Demand is said to be when the quantity demanded is not very responsive to changes in price.

inelastic

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be .

inelastic

Taxes on goods with demand curves will tend to raise more tax revenue for the government than taxes on goods with demand curves.

inelastic; elastic

If the supply curve for a product is horizontal, then the elasticity of supply is:

infinity

The elasticity of supply is defined as the change in quantity supplied divided by the change in price.

percentage; percentage

If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to:

stay the same and the quantity to fall

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

the percentage change in quantity demanded divided by the percentage change in price

Demand is said to be when the quantity demanded changes at the same proportion as the price.

unit elastic