(2.1) Elasticity Cross price, income, and supply

If supply is relatively inelastic, firms are relatively _____ responsive to an increase in price.

less

The _____ run is the time period in which all inputs of production can be changed.

long

The time period in which all inputs of production are variable and no input is fixed is the:

long run

If supply is relatively elastic, firms are relatively _____ responsive to an increase in price.

more

Over time, supply in a market evolves and becomes relatively _____ elastic.

more

If the price of good A increases and generates a decrease in the quantity of good B demanded, then the cross-price elasticity of demand is

negative

Cross-price elasticity of demand uses

negative and positive values to determine is goods are substitutes or complements.

Cross-price elasticity of demand uses:

negative and positive values to determine is goods are substitutes or complements.

If the price of good A increases and generates an increase in the quantity of good B demanded, then cross-price elasticity of demand is:

positive

Price elasticity of supply is a _____ number because of the law of supply.

positive

_____ is a measure of how responsive demand is to a change in consumer income.

Income elasticity of demand

A cross-price elasticity of demand of 1.25 means that if the price of A increases by 1%, the quantity demanded of good B will _____ by _____ %.

Increase 1.25

The _____ sign on _____ elasticity of supply indicates the direct relationship that exists between price and quantity supplied.

positive price

With cross-price elasticity of demand,:

positive value indicates substitutes and negative value indicates complements.

When two goods are complements, the cross-price elasticity of demand is negative.

True

With income elasticity of demand,:

a positive value indicates normal goods.

If the price of good A increases and generates a decrease in the demand for good B, then the two goods are:

complements

If we want to evaluate the effect of a change in price of one good on the quantity demanded of a different good we use:

cross-price elasticity of demand.

If we want to evaluate the effect of a change in price of one good on the quantity demanded of a different good, we use:

cross-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.

According to cross-price elasticity of demand, when two goods are complements, if the price of good A increases, then it generates a(n) _____ in the demand for good B.

decrease

A cross-price elasticity of demand of -0.50 means that if the price of good A increases by 1%, the quantity demanded of good B will _____ by _____ %.

decrease 0.5

A cross-price elasticity of demand of 0.50 means that if the price of good A decreases by 1% the quantity demanded of good B will _____ by _____ %.

decrease 0.5

An income elasticity of demand of 0.50 means that if income decreases by 1%, the quantity demanded will _____ by _____ %

decrease 0.5

A price elasticity of supply of 1.25 means that if the price decreases by 1% the quantity supplied will _____ by _____ %.

decrease 1.25

A cross-price elasticity of demand of 1.25 means that if the price decreases by 10%, the quantity demanded will _____ by _____ %.

decrease 12.5

An income elasticity of demand of 2.5 means that if income decreases by 10% the quantity demanded will _____ by _____ %

decrease 25

If Es = 1.25, the supply is:

elastic

If supply is relatively _____, firms are relatively more responsive to an increase in price.

elastic

The effect of policies will change over time as supply becomes relatively more

elastic

When comparing the elasticity of two different supply curves, the flatter one is relatively more _____, all else held constant.

elastic

Price _____ of supply is a measure of how responsive the quantity supplied is to a change in price.

elasticity

When comparing the elasticity of two different supply curves the one that is _____ is relatively more elastic all else held constant.

flattest

Over time, the _____ period becomes the _____ run and the _____ run becomes the _____ run.

immediate short short long

_____ elasticity of demand is a measure of how responsive demand is to a change in consumer income.

income

A cross-price elasticity of demand of -0.75 means that if the price of good A decreases by 10% the quantity demanded of good B will _____ by _____ %.

increase 7.5

A price elasticity of supply of 0.75 means that if the price increases by 10%, the quantity supplied will _____ by _____ %.

increase 7.5

According to cross-price elasticity when two goods are substitutes, if the price of good A increases, then the demand for good B

increases

If Es = 0.25, the supply is:

inelastic

If supply is relatively _____, firms are relatively less responsive to an increase in price.

inelastic

Supply is perfectly _____ when the value of the price elasticity of supply is zero.

inelastic

For _____ goods, an increase in income decreases demand and a decrease in income increases demand.

inferior

Supply is perfectly elastic when the value of the price elasticity of supply is _____.

infinity

The formula for price elasticity of supply is:

% change in quantity supplied/% change in price.

Suppose that when the price of gasoline is $3.50 per gallon, the total amount of gasoline supplied in the United States is 10 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon, the total amount of gasoline supplied is 8 million barrels per day. Based on these numbers and using the simple formula, the percentage change in price is:

-14.3%

Suppose the price of movie tickets decreases by 4%, causing the quantity demanded of popcorn to increase by 10%. What would the cross-price elasticity for movie tickets and popcorn be in this example

-2.5

Suppose the price of movie tickets decreases by 4%, causing the quantity demanded of popcorn to increase by 10%. What would the cross-price elasticity for movie tickets and popcorn be in this example?

-2.5

Suppose the price of milk increases by 15%, causing the quantity demanded of cereal to decrease by 45%. What would the cross-price elasticity for milk and cereal be in this case?

-3

If the cross-price elasticity of hamburgers and ketchup is −0.6, and the price of hamburgers increases by 50%, how would be the percentage change in the quantity of ketchup demanded?

-30%

As a result of a 4% decrease in income, the quantity of cereal demanded increases by 24%. What is the income elasticity of demand for cereal?

-6

If the price of peanut butter increases by 25%, causing the quantity demanded of almond butter to rise by 5%, then the cross-price elasticity for peanut butter and almond butter is:

0.2

If the price of coffee decreases by 50%, causing the quantity demanded of tea to decrease by 20%, then the cross-price elasticity for coffee and tea is:

0.4

Suppose that when the price of gasoline is $3 per gallon, the total amount of gasoline supplied in the United States is 12 million barrels per day. Also suppose that when the price of gas decreases to $2.25 per gallon, the total amount of gasoline supplied is 8 million barrels per day. Based on these numbers and using the simple formula, the price elasticity of supply of gasoline is:

1.33

Suppose that when the price of gasoline is $3.50 per gallon, the total amount of gasoline supplied in the United States is 8 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon, the total amount of gasoline supplied is 6 million barrels per day. Based on these numbers and using the simple formula, the price elasticity of supply for gasoline is:

1.75

Suppose that when the price of gasoline is $3 per gallon, the total amount of gasoline supplied in the United States is 8 million barrels per day. Also suppose that when the price of gas decreases to $2.25 per gallon, the total amount of gasoline supplied is 7 million barrels per day. Based on these numbers and using the simple formula the percentage change in quantity supplied is:

12.5%

Suppose the price elasticity of supply for gasoline is 0.8. If the price of gasoline increases by 20%, the percentage change in the quantity of gasoline supplied is _____ %

16

Suppose the cross-price elasticity of peanut butter and jelly is −0.8. If the price of peanut butter decreases by 25%, the percentage change in the quantity of jelly demanded is _____%.

20

Suppose the cross-price elasticity of traveling by bus and traveling by train is 0.7. If the price of traveling by bus increases by 40%, how much would the quantity of traveling by train change?

28%

When income increases by 5%, the quantity of designer clothing demanded increases by 20%. What is the income elasticity of demand for designer clothing?

4

Suppose the price elasticity of supply for lumber is 2.4. If the price of lumber increases by 20%, how much would the quantity supplied of lumber change?

48%

Suppose the cross-price elasticity of beef and pork is 0.3. If the price of beef increases by 25%, the quantity of pork demanded would change by _____%.

7.5

If an increase in the price of good A results in a decrease in the quantity demanded of good B, then the two goods are

Complements

Which of the following uses negative and positive values to assess whether goods are substitutes or complements?

Cross-price elasticity

_____ elasticity of supply is a measure of how responsive the quantity supplied is to a change in price.

price

Because a direct relationship exists between price and quantity supplied,:

price elasticity of supply is positive.

Cross-price elasticity of demand is a measure of the responsiveness of a change in the:

price of one product to the quantity demanded of another product.

The _____ run is the time period in which at least one input of production is fixed, but other inputs can be changed.

short

If the price of good A increases and generates an increase in the demand for good B, then the two goods are:

substitutes

When two goods are _____, cross-price elasticity of demand is positive.

substitutes

The effect of policies will change over time as:

supply becomes relatively more elastic.

The time periods associated with a set of supply curves include all of the following EXCEPT:

the market period.

The time periods associated with a set of supply curves include:

the short run. the immediate period. the long run.

With income elasticity of demand,:

the sign helps determine whether the goods or services are normal or inferior.

When considering different time periods,:

we are essentially viewing the same market from three different time-period perspectives.

Supply is perfectly inelastic when the value of the price elasticity of supply is equal to _____.

zero