Chapter 7- Microeconomics

Ashley recently got a 15 percent raise. She now purchases 7.5 percent more coffee. Ashley's income elasticity for coffee is

.5

Suppose the state of Colorado imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The absolute value of the price elasticity of demand for cigarettes is equal to

.67

Refer to Figure 7-11. As price falls from PA to PB, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

D3

When demand is price inelastic,

price and total revenue move in the same direction

If the demand for a product increases as the result of a decline in income, it can be concluded that the

product is an inferior good

Suppose the value of income elasticity of demand for a private college education is equal to 1.5. This means that

a 10 percent increase in income causes a 15 percent increase in the quantity of private college education purchased.

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause

a leftward shift in the demand curve for bus travel.

If Camila's income rises by 20 percent, and, as a result she purchases 40 percent more dresses, her income elasticity for dresses is

2.0

Refer to Figure 7-15. Along which of these segments of the supply curve is supply least elastic?

Between E and F

Refer to figure 7-13, if prices increases from $10 to $15, total revenue will

Increase by $20, so demand must be inelastic in this price range.

Which of the following would be the best example of consumer surplus?

Nicolas pays $8 for a haircut that is worth $10 to him

Refer to Figure 7-14. Which supply curve represents perfectly inelastic supply?

S1

Goods that consumers regard as luxuries generally have

an income elasticity greater than 1.

The difference between normal and inferior goods is that

an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward.

In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-7 is

approximately equal to -3

If a sandwich shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the sandwich shop must be

of unitary elasticity

Suppose Microsoft announces it is cutting the prices of some of its software titles by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is

elastic

Refer to Figure 7-12. When price falls from $50 to $40, it can be inferred that demand between those two prices is

elastic, since total revenue increases from $5,000 to $8,000

If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on shoes, and Santiago is utility-maximizing consumer, he should

increase his spending on shoes and decrease his spending on jeans

A recent study on enrollment at a liberal arts college concluded that demand elasticity is .65. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to

increase tuition, which would generate more revenue

If the demand for a good is elastic, then the total revenue

increases as price decreases

Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas is

inelastic

If the price of tuna fish increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the tuna fish producer could increase its total revenue by

lowering price

Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that

more good substitutes exist for fresh tomatoes that for salt

a 10 percent increase in the price of butter reduces butter consumption by about 5 percent. The increase causes households to

spend more on butter

Which demand curve in Figure 7-16 is perfectly elastic?

the curve in graph B

Which of the demand curves in Figure 7-16 is unit elastic?

the curve in graph C

If the price of gasoline goes up, and Jacob now buys fewer candy bars because he has to spend more on gas, this would be best explained by

the income effect

I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today. This statement most clearly reflects

the law of diminishing marginal utility

A normal good is defined by economists to be a good

whose demand increases when income increases