ECN Chapter 3

When the percent change in price is _____ than the percent change in quantity demanded, demand is _____.

smaller; elastic

Inferior Good:

the coefficient will be negative because income and quantity are moving the opposite direction

normal good

the coefficient will be positive because income and quantity are moving same direction

A good or service whose quantity demanded changes very little in response to a price change is said to be

inelastic

A 10 percent increase in the quantity of spinach demanded results from 20 percent decrease in its price. the price elasticity of demand for spinach is

0.5

If cutting the price of milk by 20% leads to an increase in the quantity demanded by 10%, what is the absolute value of the price elasticity of demand for milk?

0.5

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

0.5

Calculate the absolute value of the price elasticity of demand if the percentage change in price is 45% and the percentage change in quantity is −27%.

0.6

The price of milk at the local grocery store is cut by 15%, and the quantity of milk demanded increases by 10% in response. What is the absolute value of the price elasticity of demand for milk?

0.67

Calculate the absolute value of the price elasticity of demand if the percentage change in price is 67% and the percentage change in quantity is −55%.

0.8

When Uber increased prices by 80% for a certain place and specific time it led to a 100% increase in Uber drivers supplying rides. Using the percent change in the price and the percent change in the quantity supplied, what is the price elasticity of supply for Uber rides?

1.25

Why may you want to raise your prices when you discover that demand for your product is inelastic?

because raising prices will increase your revenue

Narrowly defined markets will have more elastic demand than

broadly defined markets

demand elasticity depends on

necessity versus luxury, availability of close substitutes, definition of the market, time horizon, percentage of income.

perfectly elastic graph

horizontal

the closer the substitutes for a good, the

more elastic are the demand for it.

All normal goods have

positive income elasticities of demand

The price elasticity of demand measures how responsive buyers are to

price changes

As time passes after a change in the price, the supply of a good or serviceA) becomes more elastic.B) becomes less elastic.C) initially becomes more elastic and then becomes less elastic.D) initially becomes less elastic and then becomes more elastic.

becomes more elastic

The cross-price elasticity is negative for goods that are _____.

complements

Not Related

cross price elasticity equal to zero

relatively steep.

inelastic demand curve

when demand is ___, a decrease in price wll ___ total revenue

inelastic, decrease total revenue,

If demand is _____, a higher price yields _____ total revenue.

inelastic, higher

Suppose the percentage change in newspapers demanded for any price change is infinite. The absolute value of the elasticity of demand for newspapers is _____, and demand is _____.

infinity, perfectly elastic

A small price increase causes a

large drop in quantity demanded

we say that demand is elastic whenever the absolute value of the percent change in quantity demanded is

larger than the absolute value of the percent change in price.

Elasticity is not the same as slope. The elasticity will change over a

linear demand curve

Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes:

more elastic

When the absolute value of the price elasticity of demand is exactly equal to 1 it is

neither elastic nor inelastic

zero means

no change when income changes

supply will be more elastic

over time

income elasticity of demand

percentage change in quantity/ percentage change in income

When the absolute value of the price elasticity of demand is infinite, demand is:

perfectly elastic

If the supply curve is vertical then supply is

perfectly inelastic

The concept of elasticity of supply measures the responsiveness of the

quality supplied to change in price

with inelastic demand,

quantity demanded doesn't change much when price changes

Whenever two demand curves pass through the same point, the _____ demand curve is the _____ elastic demand curve.

flatter, more

In perfectly competitive markets, if you raise your price by even a small amount, the quantity demanded of your products _____.

goes to zero

Which goods have more elastic demands

goods with many substitutes

Pizza Hut pizza has more close substitutes than does food in general. The price elasticity of demand for Pizza Hut pizza is ________ the price elasticity of demand for

greater than

a price increase will

increase revenue

If an increase in price results in no change in total revenue, then demand must be

unit elastic

If the coefficient is equal to 1, we conclude demand is

unit elastic

If the price of tacos rises by 30%, and the quantity supplied rises by 3%, what is the price elasticity of supply of tacos?

0.1

unit elastic graph

linear from origin

When the government increased the minimum wage by 50%, it led to a 75% increase in workers providing labor. Based on the information given, what is the price elasticity of supply for labor?

1.50

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

2, substitutes

elasticity

A measure of how a change affects either quantity supplied or quantity demanded.

a price decrease will

decrease revenue

The cross-price elasticity of demand measures how responsive the:

demand for one good is to a change in the price of another good.

When quantity is very responsive

demand is elastic.

The cross-price elasticity of demand measures by what percent the quantity _____ following a 1% increase in the price of another good.

demanded will rise

with unit elastic demand, changing price

does not affect total revenue

relatively flat

elastic demand curve

A local transit authority charges $1 for a bus ride. An economics study suggests that in the price range from $0.50 to $1.50, the elasticity of demand for bus trips is 1.1. To increase its revenue, the transit authority should

lower the fare

necessities are less elastic than

luxuries

A 10 percent increase in income has caused a 5 percent decrease in the quantity demanded. Theincome elasticity is

-0.5

Items that account for a large portion of a consumer's income are likely to have a

higher elasticity

The law of demand tells us that when the price falls

the quantity demanded will rise.

total revenue

The total amount paid by buyers and received by sellers.

The most important determinant of price elasticity of supply is

time

perfectly inelastic graph

vertical line

gas is an example of inelastic because

you will buy it even if prices rise

The price of product A is cut by 30%. As a result, the quantity demanded of product B rises by 40%. The cross-price elasticity of demand between product A and product B is _____, and they are _____.

-1.33, complements

The quantity of parking permits demanded drops from 12,774 down to 7,265; use the midpoint formula to calculate the percentage change in quantity.

-55%

If the price of windmills rises by 20%, and the quantity supplied rises by 2%, what is the price elasticity of supply of windmills?

0.1

If cutting the price of frozen pizza by 30% leads to an increase in the quantity demanded by 6%, what is the absolute value of the price elasticity of demand for frozen pizza?

0.2

_____ is the total amount you receive from buyers, which is calculated as price times quantity.

Total revenue

If the coefficient is greater than 1, we conclude demand is

elastic

The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____.

0.4, inelastic

Using average price and average quantity, calculate the price elasticity of demand if a price rise from $8 to $10 and decreases the quantity demanded from 20 units to 15 units. The price elasticity of demand equals

1.29

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs?

2.7

income elasticity of demand

A measure of how a change in income effects demand

price elasticity of demand

A measure of how a change in price affects the quantity demanded.

price elasticity of supply

A measure of how a change in price affects the quantity supplied.

cross price elasticity of demand

A measure of how a change in the price of another product affects demand

The cross-elasticity of demand between Homer's Holesome Doughnuts and Krusty's Krispy Crullers is...

Homer's doughnuts and Krusty's crullers are substitutes and the relationship between the two goods is strong (that is, the quantity demanded of doughnuts is very responsive to changes in the price of crullers

If the price elasticity of demand for gasoline is 0.8 and the price elasticity of demand for a plane ticket is 2.2 then the demand for gasoline is ______ and the demand for plane tickets is _____.

Inelastic, elastic

For Product X, the income elasticity of demand is -2.56. Which of the following is therefore TRUE

Inferior good

Mary loves avocados and must consume avocados every week, regardless of the price. Which of the following must be true?

Mary has an inelastic demand for avocados.

Complementary Good

Negative cross price elasticity—the farther the number from zero, the more responsive

substitute good

Positive cross price elasticity—the greater the number, the more responsive

examples of elasticity

Price and Quantity Demanded Income and Demand Price and Quantity Supplied Price of Related Good and Demand

Toothpaste and toothbrushes are complements, so the ________ elasticity of demand is ________.

cross, negative

A good or service whose quantity demanded changes a great deal in response to a price change is said to be

elastic

Because there are numerous choices for fast food purchases, the price elasticity of demand for Taco Bell food is likely

elastic

The taxicab fare in Newville is regulated. The fare currently charges $6 a ride. Newville taxicab drivers want to obtain government's permission to lower the fare, which they think will increase their total revenue. From this we can conclude that the drivers believe that the demand for taxicab rides is...

elastic

When buyers are very responsive to price, economists describe their demand as

elastic

When the absolute value of the price elasticity of demand is greater than 1, demand is:

elastic

Whenever two demand curves pass through the same point, the demand curve that's flatter at that point is the more

elastic demand curve.

Goods tend to have more

elastic demand over time

Goods with more close substitutes are more likely to be

elastic.

If your customers are very responsive to price changes, that is, if their demand is _____, then a modest price rise will lead to _____ in quantity.

elastic; a large decline

If consumers are relatively unresponsive to price changes, demand is said to be .

inelastic

If the coefficient is between 1 and 0, we conclude demand is

inelastic

When buyers are not very responsive to price changes, economists describe their demand as

inelastic

When the absolute value of the price elasticity of demand is less than 1, demand is:

inelastic

if the price elasticity is between 0 and 1 demand is

inelastic

If the coefficient is equal to 0, we conclude demand is

perfectly inelastic

The price elasticity of demand for a good with a vertical demand curve is:

perfectly inelastic

Consumers react more to temporary price changes than to

permanent price changes

The price elasticity of demand measures by what percent the _____ will change following a 1% _____ increase.

quantity demanded; price

If an item is a necessity rather than a luxury, its demand curve will be:

relatively steep

Taking the absolute value of the income elasticity of demand is incorrect because it would:

remove the ability to tell whether the product is an inferior good or a normal good.

You are given data on four products — toothpaste, shampoo, soap, and laundry detergent. The absolute value of the price elasticity of demand for toothpaste is 4. The absolute value of the price elasticity of demand for shampoo is 0.2. The absolute value of the price elasticity of demand for soap is 0.5. The absolute value of the price elasticity of demand for laundry detergent is 2. Which product has the most inelastic demand?

shampoo

the amount of time elapsed since a price change impacts the elasticity

the more elastic is the demand for the good.

What is the formula for the price elasticity of​ demand?

the percentage change in quantity demanded divided by the percentage change in price.

The cross-price elasticity of demand measures all of the following EXCEPT:

the ratio of the percent change in the price of another good to the percent change in quantity demanded.

The price elasticity of demand measures

the responsiveness of the quantity demanded to changes in price