econ chapter 6

The price elasticity of demand for gasoline in the short run has been estimated to be 0.1. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total expenditures on gasoline in the short run, all other things equal? - Total expenditures will remain unchanged. - Quantity demanded will decrease, but total expenditures will rise. - Quantity demanded will not change much, but total expenditures will rise. - Quantity demanded will stay the same, but total expenditures will fall.

Quantity demanded will not change much, but total expenditures will rise

Since for most people, eating in restaurants is a luxury and eating at home is a necessity, the price elasticity of demand for food eaten at home is less than the price elasticity of demand for eating in restaurants. T/F

TRUE

After a price decrease, the quantity effect tends to: make the price effect stronger. increase total revenue. make the price effect weaker. decrease total revenue.

increase total revenue

A major determinant of the price elasticity of demand is the availability of substitutes. t/f

true

Price times quantity demanded

Total revenue

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged? -Total revenue will rise. -Total revenue will remain unchanged. -The information is insufficient to answer the question. -Total revenue will fall.

Total revenue will fall

The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged? Total revenue will rise. Total revenue will remain unchanged. Total revenue will fall. The information is insufficient to answer the question.

Total revenue will fall

If the demand for golf is unit-price elastic and your local public golf course increases the greens fees for using the course, you expect: -a decrease in the amount of golf played on the course. -a decrease in total revenue received by the course. -an increase in total revenue received by the course. -no change in the amount of golf played on the course.

a decrease in the amount of golf played on the course

A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for: - newspapers to be more price-elastic. - a home entertainment system to be more price-inelastic. - the two to be equally price-elastic. - a home entertainment system to be more price-elastic.

a home entertainment system to be more price-elastic

Which of the following pairs of goods are most likely to have a cross-price elasticity of demand that is greater than zero? - shoes and shoelaces - apples and bananas - gas and cars - pizza and breadsticks

apples and bananas

The pair of items that is likely to have the highest cross-price elasticity of demand is: - peanut butter and jelly. - spaghetti and meatballs. - baseball and baseball glove. - coffee and tea.

coffee and tea

If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered: substitute goods. luxury goods. complementary goods. inferior goods.

complementary goods

The price elasticity of demand along a demand curve with a constant slope: - is greater than the slope. - decreases in absolute value as quantity demanded rises. - is equal to the slope. - is less than the slope.

decreases in absolute value as quantity demanded rises

On a linear demand curve: demand is inelastic at high prices. demand is elastic at low prices. demand is elastic at high prices. elasticity is the same at all points on the demand curve.

demand is elastic at high prices

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 160. In this price range, the demand for chocolate-covered peanuts is _____, and total revenue will _____ when the price increases. inelastic; increase elastic; decrease inelastic; decrease elastic; increase

elastic; decrease

A price ceiling below equilibrium will cause a larger shortage when demand is _____ and supply is _____. perfectly inelastic; elastic inelastic; inelastic elastic; elastic elastic; inelastic

elastic; elastic

The demand for strawberry ice cream tends to be relatively price-elastic because: - for most people there are many close substitutes for strawberry ice cream. - for most people there are many close substitutes for strawberry ice cream and it costs so little. - it costs so little. - it has to be consumed very quickly.

for most people there are many close substitutes for strawberry ice cream

The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil. greater than less than equal to not comparable to

greater than

he cross-price elasticity of demand of substitute goods is: greater than 0. between -1 and 0. less than 0. equal to 0.

greater than 0

A shirt manufacturer sold 10 dozen shirts per day at $4 per shirt but sold 15 dozen shirts per day at $3 per shirt. The price elasticity of demand (by the midpoint method) is: - greater than 3 - greater than 0 but less than 1 - greater than 1 but less than 3 - equal to 1

greater than 1 but less than 3

The pair of items that is most likely to have a negative cross-price elasticity of demand is: hamburgers and ketchup. mustard and aspirin. cashews and peanuts. coffee and tea.

hamburgers and ketchup

When the absolute value of the percentage change in quantity demanded is less than the absolute value of the percentage change in price, demand is: inelastic. unit-elastic. elastic. unknown.

inelastic

When the absolute value of the percentage change in quantity demanded is less than the absolute value of the percentage change in price, demand is: - elastic - inelastic - unknown - unit-elastic

inelastic

The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will have _____ prices, _____ quantities sold, and _____ incomes. lower; greater; lower lower; lower; lower higher; higher; higher lower; greater; higher

lower; greater; lower

If an increase in income leads to an increase in the demand for a good, then the good is said to be: - a luxury - inferior - a staple - normal

normal

If your income increases and your consumption of bagels increases, other things equal, bagels are considered what type of good?

normal good

Which of the following is most likely to have a vertical supply curve? insulin paintings by Van Gogh oil salt

paintings by Van Gogh

If a change in price causes total revenue to change in the same direction, we can conclude that the demand is: price elastic. price inelastic. price unit-elastic. zero elastic.

price inelastic

If quantity supplied responds substantially to a relatively small change in price, supply is: price-inelastic. insensitive to changes in price. negatively sloped. price-elastic.

price-elastic

If the quantity supplied responds substantially to a relatively small change in price, supply is: price-elastic. price-inelastic. insensitive to changes in price. negatively sloped.

price-elastic

If the price elasticity of supply is less than 1, then supply is: price-inelastic. price-elastic. very responsive to price changes. price unit-elastic.

price-inelastic

The supply curve for a good will be more elastic if: - spending on the good accounts for a large share of a consumer's income. -the good is a luxury item. - production inputs are readily available at a relatively low cost. - there is very little time for producers to respond to a price change.

production inputs are readily available at a relatively low cost

after a price increase, fewer units are sold, which tends to lower revenue an elastic demand has a stronger value of this

quantity effect

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered: substitute goods. inferior goods. luxury goods. complementary goods.

substitute goods

Since the price of walnuts increases as the demand for cashews increases, we can assume that these two goods are: inferior. unrelated. substitutes. superior.

substitutes

The university hopes to raise more revenue by increasing parking fees. This plan will work only if: the price effect is larger than the quantity effect. there is no price or quantity effect. the price effect is smaller than the quantity effect. the price effect and quantity effect are the same.

the price effect is larger than the quantity effect

You are the manager of a supermarket, and you know that the cross-price elasticity of peanut butter to jelly is exactly -2.0.Because of a bad grape harvest, grape jelly prices are expected to rise by 10% next year. To account for the change in demand, you should stock 10% more peanut butter. t/f

FALSE

Consider the market for strawberries. Which of the following statements most likely applies to the strawberry market? The cross-price elasticity of demand for strawberries with respect to the price of raspberries is positive. The price elasticity of supply of strawberries is greater in the short run than in the long run. The income elasticity of demand for strawberries is negative. The price elasticity of demand for strawberries is lower in the long run than in the short run.

The cross-price elasticity of demand for strawberries with respect to the price of raspberries is positive

The price elasticity of demand for gasoline in the long run has been estimated to be 1.5. If an extended war in the Middle East caused the price of oil (from which gasoline is made) to increase and remain high for a decade, how would that affect total expenditures on gasoline in the long run, all other things equal? Total expenditures would fall. The information is insufficient to answer the question. Total expenditures would rise. Total expenditures would remain unchanged.

Total expenditures would fall

If the percentage change in the quantity demanded of a good is greater than the percentage change in income and in the same direction, then this good will have an income elasticity _____1, and it is a(n) _____ good. equal to; normal less than; inferior less than; normal greater than; normal

greater than; normal

the price elasticity of demand is ____ if the good absorbs a significant amount of income, and is ____ if it does not absorb much of an income.

high; low

If a good is a necessity with few substitutes, all others things equal, then demand will tend to: be the same as that of a luxury good. be more price-elastic. have price elasticity equal to 1. be less price-elastic.

be less price-elastic

Jessica's income increased by 10% this year. In the same year, Jessica's quantity demanded of milk increased by 10% and her quantity demanded for bread increased by 5%. This means that for Jessica: milk is an inferior good, but bread is a normal good. milk is a normal good, but bread is an inferior good. both milk and bread are normal goods. both milk and bread are inferior goods.

both milk and bread are normal goods

The price elasticity of supply is computed as the percentage change in _____ divided by the percentage change in _____. quantity supplied; consumer income quantity supplied; price quantity supplied; quantity demanded price; quantity supplied

quantity supplied; price

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise. price; quantity; decrease quantity; price; decrease quantity; price; increase. price; quantity; increase

quantity; price; decrease

Sonik, a wireless phone company, tested the effect of a price reduction for text messaging. It lowered prices from $0.08 to $0.04 per message and found that the number of messages sent tripled. This means: - the supply curve for text messaging shifted to the left. - the demand for text messaging is inelastic in this price range. - the demand for text messaging is elastic in this price range. - the demand curve for text messaging shifted to the right.

the demand for text messaging is elastic in this price range

Given a price increase for any good, the price effect on revenue is always larger than the quantity effect on revenue. True False

false

The pair of items that is most likely to have a negative cross-price elasticity of demand is: ketchup and coffee. margarine and butter. aspirin and hamburgers. hot dogs and mustard.

hot dogs and mustard

Decreases in input costs and a longer time since a price change will tend to: a. increase the price elasticity of supply. b. increase price elasticity of supply with decreases in input costs but decrease price elasticity of supply with length of time. c. decrease price elasticity of supply. d. have no impact on the price elasticity of supply.

increase the price elasticity of supply

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should: - lower prices in South Carolina and raise prices in Alabama. - leave prices unchanged in South Carolina and raise prices in Alabama. - raise prices in each state. - lower prices in each state.

lower prices in South Carolina and raise prices in Alabama

If two goods are complements, their cross-price elasticity of demand is: - positive - positive but almost equal to 0 - negative - zero

negative

Assume the supply curve shifts to the right by a given amount at each price. The price in the market will decline the most if demand is more _____ and supply is more _____. price-inelastic; price-elastic price-inelastic; price-inelastic price-elastic; price-elastic price-elastic; price-inelastic

price-inelastic; price-inelastic

Suppose the income of canned pinto bean consumers rises. All else equal, we can conclude that: - the income elasticity of demand is positive if beans are a normal good. - the income elasticity of demand is positive if beans are an inferior good. - the cross-price elasticity between beans and other goods is negative. - the cross-price elasticity between beans and other goods is positive.

the income elasticity of demand is positive if beans are a normal good

If your purchases of shoes remain constant at 9 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered: inferior goods. substitute goods. complementary goods. unrelated goods.

unrelated goods

Total revenue will decrease if the price goes _____ and demand is _____. down; price-elastic up; price-elastic up; price-inelastic up; perfectly price-inelastic

up; price-elastic

There is one gas station in a small rural town. The owner of the station claims that he will sell the same quantity of gas no matter how high or low the price. If he is correct in this assertion, the demand curve for gas at his station must be _____, with a price elasticity of _____. vertical; zero vertical; infinity horizontal; infinity horizontal; zero

vertical; zero

When the price increases from $6 to $8, the quantity demand decreases from 60 to 30. What is the PED?

2.33

The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease consumption to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks? 0.17 6 3 0.33

3

A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student in about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is: highly inelastic. 0. highly elastic. 1.

highly inelastic

after a price increase, each unit sold sells at a higher price, which tends to raise revenue an inelastic demand has a stronger value of this

price effect

The price elasticity of a good will tend to be larger: the fewer the number of substitute goods available. if it is a staple or necessity with few substitutes. if the share of income spent on the good is small. the longer the relevant time.

the longer the relevant time