Module 47
An important determinant of the price elasticity of demand is:
time available to adjust to price changes
Other things being equal, the price elasticity of demand for a product will be lower:
a. if there are few or no substitutes available.
Yovanka has diabetes, and she will pay any amount of money for insulin. What is the BEST characterization of Yovanka's demand for insulin?
a. perfectly price-inelastic
An important determinant of the price elasticity of demand is the:
proportion of the household budget spent on the good.
The university president believes that increasing student tuition by 5% will increase revenues. If the president is correct that revenues will increase, then the tuition increase will _____ the number of students enrolling by _____%.
reduce; less than 5
If a good is a necessity with few substitutes, all others things equal, then demand will tend to:
b. be less price-elastic.
The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is _____ in New Hampshire.
price elastic
If a change in price causes total revenue to change in the same direction, we can conclude that the demand is:
price inelastic.
Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is:
price inelastic.
If the price elasticity of demand is found to be 6, then demand is:
price-elastic.
If the price of a good increases by 15% and the quantity demanded falls by 20%, demand is:
price-elastic.
On a linear demand curve, the price elasticity of demand at very high prices will be:
price-elastic.
When the percentage change in quantity demanded is larger than the percentage change in price, demand is said to be:
price-elastic.
Suppose that an increase in the price of a good leads to an increase in total revenue. Ignoring other factors (like supply), at its current price the good must be:
price-inelastic
(Ref 12-8 Figure: The Demand Curve) Use Figure 12-8: The Demand Curve. If the price is $3, total revenue is _____. If the price is $4, total revenue is _____.
$21; $24
(Ref 12-8 Figure: The Demand Curve) Use Figure 12-8: The Demand Curve. If the price is $5, total revenue is:
$25
Ref 12-6 Figure: The Demand for Shirts) Use Figure 12-6: The Demand for Shirts. If the price is below _____, demand is inelastic.
$30
(Ref 12-6 Figure: The Demand for Shirts) Use Figure 12-6: The Demand for Shirts. Total revenue is maximized if the price is:
$30.
Ref 12-6 Figure: The Demand for Shirts) Use Figure 12-6: The Demand for Shirts. The Demand for Shirts. At a price of $40, total revenue is:
$8,000.
Ref 12-6 Figure: The Demand for Shirts) Use Figure 12-6: The Demand for Shirts. At a price of $30, total revenue is _____, and at a price of $10, total revenue is _____.
$9,000; $5,000
Each month Jacquelyn spends exactly $50 on ice cream, regardless of the price of each container. Jacquelyn's price elasticity of demand for ice cream is:
1.
(Ref 12-9 Figure: The Linear Demand Curve) Use Figure 12-9: The Linear Demand Curve. As a producer, you are interested in maximizing your total revenues in this market. At what price should you sell your good? What is the corresponding total revenue?
. $10; $100
The price elasticity of demand for a good such as water is likely to be very low because:
. the price is a small percentage of most budgets.
Which factor does NOT determine the price elasticity of demand?
. the slope of the supply curve
Each month Jessica buys exactly 15 Big Macs, regardless of the price. Jessica's price elasticity of demand for Big Macs is:
0.
A linear demand curve has:
Both elastic and inelastic price elasticities of demand
Ref 12-3 Figure: Estimating Price Elasticity) Use Figure 12-3: Estimating Price Elasticity. Between the two prices, P 1 and P 2, which demand curve has the HIGHEST price elasticity?
D3
(Ref 12-3 Figure: Estimating Price Elasticity) Use Figure 12-3: Estimating Price Elasticity. Between the two prices, P 1 and P 2, which demand curve has the LOWEST price elasticity?
D4
The price of a gallon of gasoline increases 10% this year. As a result, which event is most likely to occur?
Gasoline expenditures will increase if gasoline is an inelastic good
If a good has a price-inelastic demand, then which statement is NOT likely to be characteristic of this good?
It has many substitutes.
There are several close substitutes for Quaker State oil but fewer substitutes for a complete checkup of your car's engine. We can expect the demand for:
Quaker State oil to be more price-elastic than is demand for engine checkups.
The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?
Quantity demanded will decrease; total revenue will rise.
The demand for textbooks is price-inelastic. Which statement would explain this phenomenon?
Textbooks are a necessity for most students.
Which statement is not true regarding a price-elastic demand curve?
The absolute value of the price elasticity is a fraction greater than 0 but less than 1.
Consider the market for strawberries. Which statement most likely applies to the strawberry market?
The cross-price elasticity of demand for strawberries with respect to the price of raspberries is positive
Suppose the price elasticity of demand for blueberries is 1.5. If climate change destroys one-fourth of the nation's blueberry crop, how will that affect total revenue for blueberry producers, all other things unchanged?
Total revenue will fall.
Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?
Total revenue will fall.
The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged?
Total revenue will fall.
If the demand for golf is unit-price elastic and your local public golf course increases the greens fees for using the course, you expect:
a decrease in the amount of golf played on the course.
Which good is likely to have the largest price elasticity of demand?
a green Cannondale mountain bike
A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for:
a home entertainment system to be more price-elastic.
(Ref 12-2 Figure: Demand Curves) Use Figure 12-2: Demand Curves. Which graph shows a perfectly inelastic demand curve?
a. C
After you graduate from college, you open a business selling computers. Many other businesses in your city sell similar but not identical computers. Based on this information, the price elasticity of demand for the computers that your business sells will be:
a. highly elastic.
Determining the price elasticity of demand does NOT involve: a. the slope of the supply curve. b. the proportion of the budget spent on the item. c. the number of available substitutes. d. time available to adjust to price changes.
a. the slope of the supply curve.
An important determinant of the price elasticity of demand is the:
availability of substitutes.
(Ref 12-2 Figure: Demand Curves) Use Figure 12-2: Demand Curves. Which graph shows a perfectly elastic demand curve?
b. D
(Ref 12-1 Figure: Demand for Notebook Computers) Use Figure 12-1: The Demand for Notebook Computers. Total revenue at point V equals the:
b. area 0TVN.
Suppose the price of Vanilla Coke increases by 9% and quantity demanded falls by 13% overall but only by 4% for loyal Coca-Cola customers. This means that for the general public there are _____ for Vanilla Coke, but for loyal Coca-Cola customers, Vanilla Coke is more of a _____. This means that Coca-Cola will enjoy an increase in total revenue only from _____.
b. several substitutes; necessity; loyal Coca-Cola customers
Which factor does NOT determine the price elasticity of demand? a. the time available to adjust to price changes b. the slope of the supply curve c. the number of available substitutes d. the proportion of the budget spent on the item
b. the slope of the supply curve
Determining the price elasticity of demand does NOT involve a. the proportion of the budget spent on the item. b. the slope of the supply curve. c. time available to adjust to price changes. d. the number of available substitutes.
b. the slope of the supply curve.
Determining the price elasticity of demand does NOT involve: a. the number of available substitutes. b. the slope of the supply curve. c. the proportion of the budget spent on the item. d. time available to adjust to price changes.
b. the slope of the supply curve.
The demand for strawberry ice cream tends to be relatively price-elastic because:
be less price-elastic.
If total revenue goes up when the price falls, demand is said to:
be price-elastic
If total revenue goes up when the price falls, demand is said to
be price-elastic.
If total revenue goes down when the price falls, demand is said to:
be price-inelastic.
If a good is a luxury item that looms large in the household budget, then demand will tend to:
be relatively price-elastic.
(Ref 12-6 Figure: The Demand for Shirts) Use Figure 12-6: The Demand for Shirts. At a price of $30, total revenue is _____, and at a price of $10, total revenue is _____.
c. $9,000; $5,000
A restaurant manager has estimated that the price elasticity of demand for meals is 2. If the restaurant increases menu prices by 5%, she can expect the number of meals sold to decrease by _____ and total revenue to _____.
c. 10%; fall
As you move down a linear demand curve, the price elasticity of demand will:
c. decrease.
Which statement is not true regarding a price-elastic demand curve? a. The absolute value of the price elasticity is greater than 1. b. Total revenue increases when the price falls. c. The absolute value of the price elasticity is a fraction greater than 0 but less than 1. d. The percent changes in the quantity demanded exceed the percent changes in the price for any small change in price.
c. The absolute value of the price elasticity is a fraction greater than 0 but less than 1.
Which characteristic is not true of a good with elastic demand? a. It is a luxury good. b. There are a large number of substitutes. c. There is only a short time to adjust to price changes. d. It is a specific brand.
c. There is only a short time to adjust to price changes.
(Ref 12-6 Figure: The Demand for Shirts) Use Figure 12-6: The Demand for Shirts. If the price is below _____, demand is inelastic.
d. $30
On a linear demand curve, demand at very low prices will be:
d. price-inelastic.
If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.
d. quantity; price; decrease
(Ref 12-10 Figure: The Linear Demand Curve II) Use Figure 12-10: Linear Demand Curve II. If price was initially set at $8 and then increased to $10, total revenue would:
decrease, as the price effect is dominated by the quantity effect.
Ref 12-7 Figure: The Demand for e-Books) Use Figure 12-7: The Demand for e-Books. If the price of e-Books increases from $6 to $8, total revenue _____, which means that demand is _____.
decreases; elastic
When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 160. In this price range, the demand for chocolate-covered peanuts is _____, and total revenue will _____ when the price increases.
elastic; decrease
Given a price increase for any good, the price effect on revenue is always larger than the quantity effect on revenue.
false
If demand is perfectly inelastic, changes in price leave total revenue unchanged.
false
Local cable companies recently increased the price of basic services. A news expert reporting on the increase stated, "While prices have increased 40%, the cable company reports only a 20% increase in revenue." This remark suggests the demand for basic cable service is elastic.
false
The demand for strawberry ice cream tends to be relatively price-elastic because:
for most people, there are many close substitutes for strawberry ice cream
A good is likely to have an inelastic demand curve if the:
good has few available substitutes.
A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student in about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is:
highly inelastic
(Ref 12-9 Figure: The Linear Demand Curve) Use Figure 12-9: The Linear Demand Curve. If the price is initially $10, then falls to $9, this will result in a(n) _____ in quantity demanded and a(n) _____ in total revenue.
increase; decrease
In the market for computers, if the demand curve is elastic and the price of a computer decreases, we expect total revenue to _____. If the demand curve is inelastic and the price of a computer decreases, we expect total revenue to _____.
increase; decrease
(Ref 12-9 Figure: The Linear Demand Curve) Use Figure 12-9: The Linear Demand Curve. Suppose this is the demand curves for scarves in your scarf shop. If you increase the price of your scarves from $7 to $8, your total revenue will _____, and you notice that your price elasticity of demand is _____.
increase; inelastic
Ref 12-9 Figure: The Linear Demand Curve) Use Figure 12-9: The Linear Demand Curve. Suppose this is the demand curves for scarves in your scarf shop. If you increase the price of your scarves from $7 to $8, your total revenue will _____, and you notice that your price elasticity of demand is _____.
increase; inelastic
The price elasticity of demand along a demand curve with a constant slope:
increases in absolute value as the price rises.
(Ref 12-8 Figure: The Demand Curve) Use Figure Ref 12-8: The Demand Curve. Between prices $4 and $5, demand is _____, and total revenue will _____ if price increases.
inelastic; increase
9Ref 12-8 Figure: The Demand Curve) Use Figure Ref 12-8: The Demand Curve. Between prices $4 and $5, demand is _____, and total revenue will _____ if price increases.
inelastic; increase
(Ref 12-5 Figure: The Demand Curve for Oil) Use Figure 12-5: The Demand Curve for Oil. Demand is price _____ between $20 and $21 since total revenue _____ when the price _____.
inelastic; increases; increases
Demand for vegetables at a small farmers' market is steady, but the supply of vegetables has decreased because of a drought. This is good news for farmers if demand is _____ and the _____ effect outweighs the _____ effect.
inelastic; price; quantity
We predict the long-run price elasticity of demand for gasoline to be _____ the short-run price elasticity of demand for it.
larger than
Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue on the assumption that consumer demand is:
less price-elastic as departure time approaches.
Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should:
lower prices in South Carolina and raise prices in Alabama.
If an increase in the price of cotton increases total revenue, then the price effect is _____ the quantity effect.
stronger than
The price elasticity of a good will tend to be larger:
the longer the relevant time period for behavior change
The university hopes to raise more revenue by increasing parking fees. This plan will work only if:
the price effect is larger than the quantity effect.
Total revenue is:
the price of a good times the quantity of the good that is sold.
A major determinant of the price elasticity of demand is the availability of substitutes.
true
A perfectly inelastic demand curve for insulin would mean that the quantity demanded does not respond at all to changes in the price of insulin.
true
Since for most people, eating in restaurants is a luxury and eating at home is a necessity, the price elasticity of demand for food eaten at home is lower than the price elasticity of demand for eating in restaurants.
true
The mayor advocates raising the entrance fee at the city's pools to increase revenue for the city. The mayor is right only if the price effect dominates the quantity effect
true
The mayor advocates raising the entrance fee at the city's pools to increase revenue for the city. The mayor is right only if the price effect dominates the quantity effect.
true
(Ref 12-4 Figure: The Demand Curve for Bridge Crossings) Use Figure 12-4: The Demand Curve for Bridge Crossings. Demand is price_____ between $0.90 and $1.10, since total revenue _____ when the price _____.
unit-elastic; stays the same; increases
A demand curve that is perfectly inelastic is:
vertical.
A perfectly price-inelastic demand curve is
vertical.
If the price elasticity of demand equals 0, the demand curve is:
vertical.