Ch 3 Demand and Elasticity Smart Book
If quantity demanded goes up by 10 percent when price falls by 2 percent, then the price elasticity of demand is:
5
Total expenditure equals:
Total revenue P×Q
In the figure to the right, demand is
perfectly inelastic with respect to price.
In the figure on the right, if the price of grapes is $1 per pound, what will be the total expenditure on grapes each day?
$10,000
In the figure on the right, if the price of grapes is $3 per pound, what will be the total expenditure on grapes each day?
$18,000
If a 12 percent decrease income leads to a 3 percent decrease in the quantity of pedicures demanded, then the income elasticity of demand for pedicures is:
0.25
If the owners of a local clothing boutique increase the price of their merchandise, then their total revenue
Could fall since fewer people may be willing to shop there.
If the quantity of spaghetti demanded decreases by 4 percent in response to an 12 percent increase in the price of pasta sauce, then the cross-price elasticity of demand for spaghetti with respect to the price of pasta sauce is:
-0.33
If a 6 percent decrease income leads to a 9 percent increase in the quantity of lottery tickets demanded, then the income elasticity of demand for lottery tickets is:
-1.5
If a 5 percent increase income leads to a 2.5 percent decrease in the quantity of oatmeal demanded, then the absolute value of the income elasticity of demand for oatmeal is ____.
0.5
If quantity demanded goes down by 3 percent when price rises by 6 percent, then the price elasticity of demand is:
0.5
If the quantity of Big Macs demanded decreases by 4 percent in response to an 8 percent decrease in the price of Whoppers, then the cross-price elasticity of demand for Big Macs with respect to the price of Whoppers is:
0.5
If a 2 percent increase income leads to a 4 percent increase in the quantity of gasoline demanded, then the income elasticity of demand for gasoline is:
2
If the quantity of peanuts demanded increases by 6 percent in response to a 3 percent increase in the price of almonds, then the cross-price elasticity of demand for peanuts with respect to the price of almonds is:
2
The figure to the right shows Geoff's monthly demand for soap. If there are 1000 people in the market (including Geoff), each with demand curve like Geoff, then how many bars of soap in total are demanded when the price of soap is $2 per bar?
2000
Suppose that when the price of a sandwich from Dagwood's Deli is $5, there are 200 people who buy 1 sandwich per week and 100 people who buy 2 sandwiches per week. Thus, at a price of $5, the market demand each week for sandwiches from Dagwood's Deli is ______
400
The figure to the right shows Geoff's monthly demand for soap. If there are 1000 people in the market (including Geoff), each with demand curve like Geoff, then what is the market demand for soap each month when the price of soap is $1 per bar?
5000
If the owners of a nearby restaurant decrease the price of their food, then their total revenue
Could increase since more people may be willing to eat there.
If a store has a 10% off everything sale, then the store's total revenue will fall
If the demand for the store's products is inelastic with respect to price.
The nominal price of a good is
The absolute price of the good in dollar terms.
The real price of a good is
The dollar price of a good relative to the average dollar price of all other goods.
The income elasticity of demand for iPhones is
The percentage by which the quantity of iPhones demanded changes in response to a 1 percent change in income.
If the owners of a nearby restaurant decrease the price of their food, then their total revenue
could increase since more people may be willing to eat there.
If the price of lawnmowers goes up by 9 percent and the quantity of lawnmowers demanded falls by 5 percent, then the total expenditure on lawnmowers will
Increase
If the cross-price elasticity of demand for motorcycles with respect to the price of cars is 0.05, then if the price of cars increases by 10 percent, the, the quantity of motorcycles demanded will
Increase by 0.5 percent.
Consider the figure on the right. As you move from point C to B to A, the price elasticity of demand _____.
Increases
If demand is perfectly elastic with respect to price, then the price elasticity of demand is _____.
Infinite
The law of demand states that people do _____ of what they want to do as the cost of doing it rises.
Less
The absolute price of a good in dollar terms is the _____ of a good.
Nominal Price
True or false: economists believe that our preferences for different goods and services can be influenced by our peers.
True
If the price elasticity of demand for wine is 1.00, then the demand for wine is _____.
Unit elastic If the price elasticity of demand equals 1, then demand is unit elastic with respect to price.
Once people have achieved bare subsistence levels of consumption, economists emphasize that we can talk mainly in terms of people's ______.
Wants
If the price elasticity of demand for restaurant meals is 1.63, then the demand for restaurant meals is _____.
Elactic
True or false: economists believe that our preferences for different goods and services do not change over time.
False
Suppose most people either drive or take the bus to work. If bus fares increase, then you would expect _____ people to take the bus and _____ people to drive.
Fewer; more
Suppose most people either fly or drive when they go on vacation. If airfare increases, then you would expect _____ people to fly and _____ people to drive.
Fewer; more
Which of the following goods has the lowest price elasticity of demand?
Food Food has few (if any) substitutes, so the price elasticity of demand is relatively low.
Changes in price and changes in total expenditure move in the opposite direction when the price elasticity of demand is
Greater than 1
If the price elasticity of demand for shoes is 0.70, then the demand for shoes is _____.
In elastic If the price elasticity of demand is less than 1, then demand is inelastic with respect to price.
If the demand for economy-class airline tickets is elastic with respect to price, then if the price of economy-class airline tickets decreases, then total expenditure will _____.
Increase
If the dollar price of ibuprofen increases, and the average dollar price of all other goods stays the same, then the real price of ibuprofen will
Increase
If the price elasticity of demand is greater than 1 and price decreases, then total expenditure will
Increase
The income elasticity of demand is
The percentage change in quantity demanded in response to a 1 percent change in income.
The price elasticity of demand is
The percentage change in quantity demanded that results from a 1 percent change in price.
The cross-price elasticity of demand is
The percentage change in the quantity demanded of one good divided by the percentage change in the price of another good
The cross-price elasticity of demand for popcorn with respect to the price of butter is:
The percentage change in the quantity of popcorn demanded in response to a 1 percent change in the price of butter.
The cross-price elasticity of demand for snowboards with respect to the price of skis is
The percentage change in the quantity of snowboards demanded in response to a 1 percent change in the price of skis.
Price × quantity equals ________.
Total revenue Total expenditure
If the income elasticity of demand for pasta is -1.0, then a 10 percent decrease income will lead to a _____ in the quantity of pasta demanded.
10 percent increase
If the price elasticity of demand for coffee is 0.25, and the price of coffee goes down by 1 percent, then the quantity of coffee demanded will
Go up by 0.25 percent.
Which of the following goods has the highest price elasticity of demand?
Green Peas
Given that there are many different kinds of cereal that people can buy, the price elasticity of demand for any particular brand of cereal is likely to be relatively _____.
High
When a good has many close substitutes, the price elasticity of demand tends to be relatively _____.
High
When the price elasticity of demand is greater than 1, changes in price and changes in total expenditure
Move in opposite directions.
If the demand for economy-class airline tickets is elastic with respect to price, then if the price of economy-class airline tickets increases, then total expenditure will _____.
Decrease
If the dollar price of books doesn't change, but the average dollar price of all other goods increases, then the real price of books will
Decrease
Suppose the demand for first-class airline tickets is inelastic with respect to price. If the price of first-class airline tickets decreases, then total expenditure will _____.
Decrease
If the cross-price elasticity of demand for bike helmets with respect to the price of bikes is -0.25, then if the price of bikes increases by 10 percent, the quantity of bike helmets demanded will
Decrease 2.5
The number written on a price tag is a good's ________.
Nominal price
The prices listed on the menu at your favorite restaurant are _____.
Nominal prices
The formula for the price elasticity of demand is:
P/Q × 1/slope
The percentage change in quantity demanded that results from a 1 percent change in price is the
Price elasticity of demand.
The dollar price of a good relative to the average dollar price of all other goods is the _____ of a good.
Real price
If the income elasticity of demand for hamburgers is -0.6, then a 1 percent increase income will lead to a _____ in the quantity of hamburgers demanded.
0.6 percent decrease
Consider the figure on the right. As you move from point A to B to C, the price elasticity of demand _____.
Decreases
The law _______ of states that people do less of what they want to do as the cost of doing it rises.
Demand
If the price elasticity of demand is infinite, then demand is
Perfectly Elastic
When the price of a good goes up, part of the reason consumers purchase less of the good is that they
Switch to less expensive substitutes.
In the figure to the right, demand is:
Perfectly elastic with respect to price.
Suppose a local politician proposes that the price of lottery tickets be cut in half in order to reduce the total amount that people spend on lottery tickets. This plan will
Only be effective if the demand for lottery tickets is inelastic with respect to price.
If the price elasticity of demand for beer is 1.19, and the price of beer goes up by 1 percent, then the quantity of beer demanded will
Go down by 1.19 percent.
Low-income families spend a greater share of their budget on electricity than do high-income families. Thus, we would expect the price elasticity of demand for electricity to be _____ for low-income families than for high-income families.
Higher
The elasticity of demand for a given brand of ice cream is likely to be _____ than the elasticity of demand for ice cream in general.
Higher Since there are more substitution possibilities for a given brand of ice cream than for ice cream in general, the elasticity of demand for a given brand of ice cream is likely to be higher than the elasticity of demand for ice cream in general.
Given that most people spend a relatively small share of their budget on pencils, we would expect the elasticity of demand for pencils to be relatively _____.
Low
