chapter 5 beco questions
normal good
when quantity demended increases as income increase - they have positive income elasticities
Goods tend to have more elastic demand
over longer time horizons
Goods tend to have less elastic demand
over shorter time horizons.
When demand is elastic
total revenue falls as price rises
inelastic demand
total revenue rises as price rises.
Which of the following would likely have the least elastic supply?
Feedback: The price elasticity of supply depends on the flexibility of the sellers to change the amount of the good they produce. It is almost impossible to produce more beachfront land, so it has the least elastic supply of the goods listed.
If the price of airline tickets falls, when is the price elasticity of demand likely to be the lowest?
a.Immediately after the price increase
For a particular good, a 15 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
a.There are no close substitutes for this good. - divide QD/P if it is less than one it is inelastic
In the market for oil in the short run, demand and supply are
a.inelastic, so a shift in supply leads to a large change in price. - In the market for oil in the short run, both demand and supply are inelastic, so a shift in supply leads to a large change in price.
Due to the relative elasticities of demand and supply, the suppliers of oil are likely to be able to cause a
a.large change in price in the short run, but only a small change in price in the long run. - Because both demand and supply are inelastic in the short run, suppliers of oil are likely to be able to cause a large change in price in the short run. However, because both demand and supply are elastic in the long run, suppliers of oil are likely to be able to cause only a small change in price in the long run.
Because the demand for corn tends to be inelastic, the development of a new, pest-resistant strain of corn would tend to
b.decrease the total revenue of corn farmers. - A new, pest-resistant strain of corn increases the amount of corn that can be produced, so the supply curve shifts to the right. The demand curve does not shift. When supply shifts to the right and demand remains constant, the equilibrium price of corn decreases and the equilibrium quantity increases. When the price decreases for a good with inelastic demand, total revenue decreases.
Suppose that 4000 tires are demanded at a particular price. If the price of tires rises from that price by 8 percent, the number of tires demanded falls to 3800. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
b.demand for tires in this price range is inelastic. - Using the midpoint approach, the price elasticity of demand is about 0.63, which indicates inelastic demand. To compute the percent change in quantity, (3800-4000) / [(3800 +4000)/2] = -0.05. The percent change in price is 8 percent, or 0.08. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 0.63.
Which of the following could describe a good for which a decrease in price would decrease revenue?
d.The good is a necessity. - Necessities tend to have inelastic demand. When price decreases for a good with inelastic demand, total revenue decreases.
inferior good
if the elasticity is less than 0
elastic good
in the elsaticity is greater than 1
price elasticity of supply is greater in the
long run than in the short run,
