Chapter 5

The price of gas doubles. At 1st many people still purchase the same amount of gas. Eventually people start making other choices like carpooling and telecommute in which in turn leads to a decrease in their consumption of gasoline. This is an example which of the determinants of the elasticity?

Time period

A Susan's income increases by 20% and as a result she buys 40% more lattes then

Income elasticity of demand for lattes is 0.5

If grapefruits have a price elasticity of 4, that means that for every 1% decrease in price, the quantity demanded will

Increase by 4%

Assume a good is considered elastic. If the price of the good decreases then the total revenue

Increases

If a 30% change in the price of paper least 2 of 15% change in the quantity demanded pricey last disagree of demand for paper is considered

Inelastic

Indifference curves show

Combinations of 2 goods that gives a customer the same level of satisfaction

If the cross elasticities of demand for 2 good these negative that means that they are

Complimentary goods

When the price of product a rises the quantity of product b decreases product a and B are

Compliments

Indifference curves are

Concave to the origin, they do not intersect, they have negative slopes

Whether two goods are substitutes or complements can be determined by computing the

Cross elasticity of demand

The primary determinant of the elasticity of supply is

time

A firm increases its price for a good and total revenues increase. from this we can conclude that its demand

(not price elastic)

For a certain good when price rises from $50 to $55 quantity demanded falls from 8400 to 7500. The price elasticitiy of demand here is ___ making the demand for this good ___ in the price range between $50 and $55.

1.19 ; elastic (8400-7500)/[(8500+7950)/2]

If the price rises from $2 to $3 and the quantity demanded falls from 500 units to 300 units, the price elasticity of demand using the midpoint method is

1.25

If the price of copy paper increases from $2 to $3 what is the percentage change in price ?

50%

Which of these would result in a higher price elasticity ?

A longer time period

Which product is likely to have a lower elasticities of demand ?

A pack of gum

If the cross elasticity of demand for good A with respect to good B is 2.3, then good A is a

Substitute for good B

Text burdens are higher on consumers when

Demand is inelastic and supply is elastic

As a consumer moves downward to the right on and indifference curve choosing more of one good he is willing to give up less of the other good because of

Diminishing marginal utility

The reason economists use the midpoint method to compute elasticity is that

Economists want the elasticity to be the same whether the price is increasing or decreasing

If a product's price rises by 6% in its quantity demanded falls by 8% then we can say that demand for this product is

Elastic

The greater the percentage of the budget spent on a good, the

Higher is the elasticity of demand

Which of the following products would have the highest price elasticity of demand

Hot dog sold by a street vendor

What happens to price elasticities on a linear demand curve when the price increases above the unitary elasticity point ?

It becomes more elastic

Assume that a farm is selling his product at the prize that corresponds to the midpoint of its demand curve if the firm increases the price of its product what will happen to total revenue

It will decrease

If the price of apples causes quantity demanded to fall on the elastic portion of the demand curve what will an increase in price do to total revenue

It will fall

Assume that the demand for taxis services is inelastic. At the price of taxi services increases what will happen to total Revenue ?

It will increase

Which of the following products approximate it we has the highest price elasticity of demand ?

Leisure air travel

If hot dogs and relish are compliments, their cross elasticity of demand is

Less than 0

The ___ is a period of time long enough for firms to alter their plant capacities and for the number of firms in the industry to change

Long run

In general the flatter the supply curve is the

More elastic is supply

If soda and potato chips are compliments, then their cross elasticity of demand is

Negative

Compliments are defined as having a

Negative cross price elasticity of demand

A vertical demand curve represents demand that is

Perfectly inelastic

Knowing a product's price elasticity allows economist to

Predict the amount by which quantity demand it will change in response to a change in price

All other things remaining equal the more elastic demand is the higher the incidence of taxation on

Producers

All other things remaining equal the more inelastic demand is the lower the incidence of taxation on

Producers

Most income taxes are

Progressive

A tax that rises in percentage of income as income increases is a

Progressive tax

What will happen to the quantity demanded of a perfectly in elastic product when it's price increases by 5% ?

Quantity demanded will stay the same

A tax in which the percentage of income in tax paid rises as income falls is known as a

Regressive tax

When the increase in price for a new video game is 10% the increase in quantity supplied of that new video game is 60% what is the price elasticities of supply for that video Game ?

Six

In the figure below which supply a curve is most likely to represent the short run ?

Supply tends to be more elastic in the short run. The steeper the curve the more inelastic the supply

___ Refers to who bears the economic burden of a tax

The incidence of taxation

In general the smaller the percent of household income spent on a product

The lower the elasticity of demand

A firm will maximize total revenue it it sells its product at a price that corresponds to

The midpoint of the demand curve

Assume that demand for gasoline is inelastic. If a gas station increases the price of its gasoline what will happen to total revenue from gasoline sales ?

Total revenue Will increase

If the percentage change in quantity demanded is equal to the percentage change and price, then demand is

Unitary elastic

Products with many close substitutes tend to have ___ demand in products considered to be luxury goods tend to have ___ demand

elastic; elastic

Stores often advertise one day only sales. This technique uses the short time period to make demand more

inelastic

Suppose your income falls from $35000 to $33000, and that your quantity demanded of a good increases from 40 units to 55 units the good is said to be an

inferior good

If the demand for quilted northern bath tissue is elastic then the

percentage change in quantity demanded is greater than the percentage change in price

A tax in which the percentage of income tax rises as income falls is known as a

regressive tax

Which of these is not a determinant of elasticity ?

sales tax rate placed on an item