ECO 232 Exam 2

Elasticity is

a measure of how much buyers and sellers respond to changes in market conditions.

When studying how some event or policy affects a market, elasticity provides information on the

direction and magnitude of the effect.

Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point B and point C?

1.44

On a certain supply curve, one point is (quantity supplied = 200, price = $4.00) and another point is (quantity supplied = 250, price = $4.50). Using the midpoint method, the price elasticity of supply is about

1.89

If the cross-price elasticity of two goods is negative, then the two goods are

Complements

The cross-price elasticity of demand can tell us whether goods are

Complements or substitutes

Which of the following statements about the consumers' responses to rising gasoline prices is correct?

Consumers decrease their quantity demanded more in the long run than in the short run.

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Luxuries

Scenario 5-1 Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

The income elasticity is 1 so pizza is a normal good.

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good

The flatter the demand curve through a given point, the

greater the price elasticity of demand at that point.

If the demand for textbooks is inelastic, then an increase in the price of textbooks will

increase total revenue of textbook sellers.

Refer to Figure 5-6. For prices below $8, demand is price

inelastic, and total revenue will rise as price rises.

When a supply curve is relatively flat, the

supply is relatively elastic.

For a good that is a luxury, demand

tends to be elastic.