Econ Chapter 4

When the price of scooters drops by 5%, the quantity demanded changes by 15%. We know that the price elasticity of demand for scooters is_________________ elastic.

15/-5 = -3 very elastic

When the price of a basketball is $15, the quantity supplied is 5,000. When the price increases to $20, the quantity supplied is 10,000. Using the midpoint method, the price elasticity of supply is ______________ .

(10,000-5,000)/[(10,000+5,000)÷2] / (20-15)/[(20+15)÷2] =2.33

If the percentage change in quantity demanded of Good B is 2% and the percentage change in the price of Good A is -10%, what is the cross-price elasticity of demand?

2/-10 = -0.2

If the cross-price elasticity of demand is -3, Goods A and B are _______________.

Complementary goods

When you measure the change in the quantity demanded of one good because of a change in the price of another good, you are measuring ___________________.

Cross price elasticity

The cross-price elasticity is determined by what formula?

E = %ΔQ / %ΔP

Over time, the price elasticity of supply for sunglasses will become __________________. (more elastic, more inelastic, or unchanged)

Elastic

Over time, the price elasticity of supply becomes more inelastic. True or False?

False, the supply becomes more elastic.

A perfectly elastic supply curve is ___________________ . (vertical or horizontal)

Horizontal

If a friend says, "I am never going to buy another Dua Lipa remix again!" his or her price elasticity of demand for Dua Lipa remixes is ___________________.

Inelastic

Suppose that the price elasticity of demand is -0.80 for aspirin. We could then say that the demand for aspirin is____________________.

Inelastic, since it is less than 1

Are Shoes and Socks likely to have a negative or positive cross-price elasticity of demand? Why?

Negative since they are complements

Does the cost of producing a good affect the good's price elasticity of demand?

No, the actual price of the good is what forms the relationship

A vertical supply curve can be described as _________________ inelastic.

Perfectly

When the demand curve is perfectly horizontal, the price elasticity of demand is ___________________.

Perfectly elastic, infinite

"No matter the price, I will always buy five gallons of ice cream a week. I love ice cream!" This statement reflects a price elasticity of demand that is ________________.

Perfectly inelastic, the price doesn't affect the consumers wants.

When the demand curve is vertical, the price elasticity of demand is _____________ _. (positive, negative or zero?)

Perfectly inelastic, zero

When two goods are substitutes for each other, what will the cross-price elasticity be?

Positive

Are Pepsi and Coke likely to have a positive or negative cross-price elasticity of demand? Why?

Positive since they are substitutes

What is the responsiveness of quantity consumers buy to price changes, If a business finds that demand for its good is very price elastic?

Price changes for these goods cause substantial changes in their demand or their supply.

Price elasticity of demand measures the change in _______________ due to change in _______________.

Price elasticity of demand measures the change in demand due to change in price.

Demand is inelastic if..

Quantity demanded changes a small amount as a result of a price change, insensitive and unresponsive.

Demand is elastic if...

Quantity demanded changes significantly as the result of a price change, sensitive and responsive.

Salima is a devoted Coca-Cola consumer, whereas Antonia will drink either Coca-Cola or Pepsi products. Salima's demand for Coca-Cola will be_________________________, while Antonia's demand will be relatively more ________________________.

Salima is a devoted Coca-Cola consumer, whereas Antonia will drink either Coca-Cola or Pepsi products. Salima's demand for Coca-Cola will be inelastic, while Antonia's demand will be relatively more elastic.

What is price elasticity of supply?

Shows the responsiveness of supply to a change in price

What kind of graphs depicts a price elasticity of demand of -0.2?

Since this is less than 1, the demand is inelastic, this graph is steep.

What kind of graphs depicts a price elasticity of demand of -5?

Since this is less than 1, the demand is inelastic, this graph is steep.

If the cross-price elasticity of demand is 4, Goods A and B are _________________.

Substitute goods

What kind of graph represents a relatively price-elastic demand for a good?

The demand curve is relatively flat

What does the price elasticity of demand measure?

The responsiveness of quantity demanded to a change in price.

Demand is almost always more price-elastic in the long run. T or F? Why?

True, more options become available and people can make different choices.

If the supply of a good is perfectly inelastic, then the price elasticity of supply will equal __________________.

Zero

As we move downward along the demand curve, the price elasticity of demand _________________.

becomes more inelastic

Between a five-star hotel, a doctor's visit, used clothing, and toilet paper, which of these goods would most likely have an income elasticity of demand equal to 8? Why?

five-star hotel

If the percentage change in the quantity consumed of pizza is 6% and the percentage change in income is 2%, what is the income elasticity of demand for pizza?

income elasticity of demand =3, 6/2=3

What good amongst gourmet pizza, steak, designer/fancy clothing or instant noodles is most likely to have a negative income elasticity of demand?

instant noodles

As price elasticity of supply becomes more elastic over time, the overall shape of the supply curve becomes___________________________. (more horizontal, more vertical, or completely vertical)

more horizontal

When the price elasticity of demand is - 0.36, a decrease in price will__________________.

result in a smaller percentage change in quantity demanded

When Heavenly Cookies prices its sugar cookies at $1.00, it sells 75 cookies. It lowers the price to $0.50 and sells 200 cookies. Its total revenue _________________ because the price elasticity of demand for sugar cookies is ____________________.

rose, elastic, 1(75)=75, .50(200)=100

In a typical demand curve, the price-elastic portion of demand is found in the _______________ region and the price-inelastic portion of demand is found in the _______________ region of the graph.

the price-elastic portion of demand is found in the upper region and the price-inelastic portion of demand is found in the lower region of the graph.

When can a firm lower price and still increase revenue?

when the demand is elastic, a small decrease in price will lead to a large increase in quanitity

Nicolette raised her quantity demanded of hockey pucks from 100 to 150 when the price fell from $6 to $4 per puck. Using the midpoint method, her price elasticity of demand is __________________.

(100-150)÷[(100+150)÷2] / (6-4)÷[(6+4)÷2] = -50÷125 / 2÷5 = -1

At a price of $2, the quantity demanded for pens is 16. When the price increases to $3, the quantity demanded for pens is 14. Using the midpoint method, the price elasticity of demand for pens is ________________________.

(14-16)÷[(14+16)÷2] / (3-2)÷[(3+2)÷2] = -2÷15 / 1÷2.5 = -0.133 / .4 = -0.33, inelastic

A local bakery gives information on consumer purchasing habits for muffins and cupcakes. It says that when the price of a muffin is $1, people buy 55 cupcakes. When the price of a muffin is raised to $2, cupcake purchases increase to 65 cupcakes. The cross-price elasticity of demand using the midpoint method is _________________ .

(65-55)/[(65+55)÷2] / (2-1)/[(1+2)÷2]= 10÷60 / 1÷1.5= .166 / .66= 2.5

Suppose that when the price of cereal rises by 10%, the quantity demanded of cereal falls by 20%. Based on this information, what is the approximate price elasticity of demand for cereal?

-20/10 = -2

When the price increases by 20% and the quantity demanded drops by 20%, the price elasticity of demand is ______________ elastic.

-20/20 = -1, unitary

A 15% increase in the price of cookies results in a 9% decrease in the quantity of cookies sold. The revenue received by cookie suppliers will _________________ because the price elasticity of demand for cookies is____________________.

-9/15=-0.6, increase, inelastic

Five determinants in influencing whether demand will be elastic or inelastic

1. existence of substitutes 2. the share of the budget spent on the good 3. necessities versus luxury goods 4. whether the market is broadly or narrowly defined 5. time and the adjustment process

If the price elasticity of supply is 1.5, we know that supply is __________________ elastic.

Relatively

A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good must have been __________________.

inelastic

Pepsi vendors who raise their price at professional sporting events increase total revenue because the price elasticity of demand is ____________________. When they raise their prices at gas stations, they decrease total revenue because the price elasticity of demand is ______________________.

inelastic, elastic