Homework | Chapter 4 - Elasticity

Total revenue will increase when price increases and demand is

inelastic

Price decreases from $30 to $20. Demand is___ and total revenue___

inelastic; decreases

If income increases by 4 percent and the quantity demanded of a good then decreases by 8 percent, the good is:

inferior (negative) and income-elastic (absolute value is greater than 1)

The elasticity of supply, in general, depends on the elasticity of the supply of

inputs

When a good is a basic necessity, compared to a luxury, demand will tend to be

less elastic

The midpoint method for calculating percentage change

measures the percentage change relative to a point midway between the two measured points.

If a good has close substitutes, the demand will tend to be ____ elastic than a good with only distant substitutes.

more

The same change in Q or P is a different percentage of the midpoint at different points on a line with constant slope. As a result,

moving down the demand curve means less elasticity.

Total revenue is the quantity of a good or service that is sold

multiplied by the price paid for each unit.

When a variable, x, increases and a variable, y, decreases, the slope of the line is

neative

When two variables, x and y, move in opposite directions, they are said to demonstrate a

negative relationship

Necessities and luxuries have income elasticities greater than zero; therefore they are ___ goods.

normal

The size of the change in the quantity demanded of a good when its price changes can be described by which of the following?

price elasticity of demand

One factor that does NOT determine the price elasticity of demand is

price of related complements

Supply is more elastic over long periods than over short periods because:

producers can make more adjustments in the long run than in the short run.

In the diagram below, draw the price effect and the quantity effect for a price change from $60 to $70. Based on the graph, the___is larger. Based on the graph, total revenue___

quantity effect; decreases

Total revenue is the___ sold multiplied by the___paid for each unit. (Enter one word in each blank.)

quantity; price

The factors that affect the price elasticity of supply do not include

relative need and relative cost

Knowing whether the demand for a good is elastic or inelastic is useful in business, because it allows a manager to determine whether a price increase will cause total___ received by the firm to rise or fall.

revenue

The ___of a horizontal line is zero. The___of a horizontal line is mathematically undefined.

slope; elasticity

The income elasticity of demand for a good describes how much

the quantity demanded changes in response to a change in consumers' incomes.

Cross-price elasticity of demand describes how

the quantity demanded of one good changes when the price of a different good changes.

When demand is elastic and the price changes,

the quantity effect outweighs the price effect.

Price elasticity of supply describes

the size of the change in the quantity supplied of a good or service when its price changes.

You have noticed that the price of tickets to your university's basketball games keeps increasing but the supply of tickets remains the same. Supply might be unresponsive to changes in price because:

there is a fixed number of stadium seats

When the absolute value of the price elasticity of demand is equal to one, we say that demand is ___-elastic.

unit

When demand is perfectly inelastic, the demand curve is

vertical

The closer the number representing the slope is to zeroBlank 1Blank 1 zero , Correct Unavailable, the flatter the curve will be.

zero

The farther the number representing the slope is from ___, the steeper the curve will be.

zero

The general formula for the price elasticity of demand is

% change in Q demanded / % change in P.

The general formula for the income elasticity of demand is Multiple choice question.

% change in Q demanded / % change in income.

The general formula for the price elasticity of supply is

% change in Q supplied/ % change in P.

What are the factors that affect the price elasticity of supply?

- Time needed to adjust to changes in price - The flexibility of the production process - The availability of inputs

Which of the following factors determine the price elasticity of demand?

- availability of substitutes - time needed to adjust to price change

A line with a slope of (-5) will be _____ than a line with a slope of (-2).

- more inelastic - less elastic - steeper

Suppose the demand for coffee went from 12 million cups at $2 to 15 million cups at $1.50. Using the mid-point formula, the price elasticity of demand is approximately ________

-0.78

Suppose the quantity demanded for coffee went from 10 million cups at $2 to 15 million cups at $1.50. Using the mid-point formula, the price elasticity of demand is ______ approximately.

-1.4

When demand is perfectly ___ the demand curve is horizontal

elastic

When the price of paintings is set at $500, the local art gallery supplies 20 paintings per week. When the price of paintings increases to $750, the gallery supplies 25 paintings. Calculate the price elasticity of supply using the mid-point formula. The price elasticity of supply is

0.55

Suppose the price of coffee beans goes from $1 to $1.20 per pound, production increases from 90 million bags of coffee beans per year to 100 million bags. Using the midpoint method, the price elasticity of supply would be approximately, _______. Multiple choice question.

0.60

Use the graph in the figure below to calculate the price elasticity of supply between points A and B using the mid-point method. The price elasticity of supply between points A and B is

1.0

Suppose the price of coffee beans goes from $1 to $1.35 per pound, production increases from 72 million bags of coffee beans per year to 100 million bags. Using the midpoint method, the price elasticity of supply would be ____. Multiple choice question.

1.09

A 10 percent decrease in consumer incomes leads to a 20 percent decrease in the quantity demanded of good D. The income elasticity of this good is: This good can best be described as:

2.0; normal and a luxury

When the absolute value of the price elasticity of demand is greater than one, we say that demand is

Elastic

What term do we use to describe a measure of how sensitive producers and consumers are to price changes?

Elasticity

Demand tends to

be more elastic when price is high and more inelastic when price is low.

When the absolute value of the price elasticity of demand is less than one we say that demand is

Inelastic

When the absolute value of the price elasticity of demand is less than one, we say that demand is

Inelastic

Which of the following would likely have the least elastic demand?

Insulin

What is one characteristic of slope and elasticity along a linear curve?

Slope is constant while elasticity changes

If close substitutes are available for a particular good, then the demand for that good will be more elastic than if only distant substitutes are available.

True

True or false: The price elasticity of demand for the good with a linear demand curve at a price of $25 will be higher than the price elasticity of demand for the good at a price of $5.

True (Demand tends to be more elastic at higher prices along a linear demand curve.

When demand is elastic:

a price increase causes revenue to fall

When demand is elastic,

a price increase causes total revenue to fall.

Use the demand curve in the figure above to answer the following questions. Use the mid-point method in your calculations. a. The price elasticity of demand for a price change from $0 to $20 b. The price elasticity of demand for a price change from $20 to $40 c. The price elasticity of demand for a price change from $40 to $60

a. -0.14 b. -0.60 c. -1.67

Use the demand schedule in the table below to answer the following questions. Use the mid-point method when calculating elasticity. a. The price elasticity of demand for a price change from $2 to $3 is: The slope of the demand curve for a price change from $2 to $3 is: . b. The price elasticity of demand for a price change from $3 to $5 is: The slope of the demand curve for a price change from $3 to $5 is: .c. The price elasticity of demand for a price change from $6 to $7 is: The slope of the demand curve for a price change from $6 to $7 is: .

a. -0.45 and -0.14 b. -1 and -0.14 c. -4.47 and -0..14

Suppose that when the average family income rises from $30,000 per year to $40,000 per year, the average family's purchases of toilet paper rise from 100 rolls to 105 rolls per year. a. The income elasticity of demand for toilet paper is___ b. Toilet paper is___ c. The demand for toilet paper is___

a. 0.17 b. a normal good c. income-inelastic (the income elasticity is greater than zero but less than one)

Calculate the percentage change in each of the following examples using the mid-point method. a. 8 to 12: b. 13 to 11: c. 130 to 125: d. 90 to 100:

a. 40% b. -16.67% c. -3.92% d. 10.53%

a. Which of the following firms would tend to have the most elastic supply? b. Which of the following products would tend to have the most inelastic supply?

a. A firm that has many substitute production processes for making its product b. Paintings by van Gogh

Refer to the demand schedule below: a. Suppose the price increases from $10 to $20. Demand is___ and total revenue___ b. Suppose the price increases from $30 to $40. Demand is___ and total revenue___ c. Suppose the price increases from $50 to $60. Demand is___ and total revenue___

a. inelastic: increases b. inelastic: increases c. elastic: decreases

You are working as a private math tutor to raise money during spring break. a. The price elasticity of demand for math tutoring might be elastic because: b. The price elasticity of demand for math tutoring might be inelastic because:

a. the break provides students with more time to look for a substitute tutor. b. students may need to use the limited break time to catch up on work.

If demand is relatively inelastic, then an increase in price will cause

an increase in total revenue

The mid-point method of calculating the price elasticity of demand

avoids the problem related to the direction of the price movement.

Elasticity is a measure of how much___and___will respond to a change in market conditions

consumers; producers

To evaluate what happens if the price of Dunkin' Donuts coffee falls but the price of a Starbucks latte stays the same, we use the Multiple choice question.

cross-price elasticity of demand.

A percentage change is the

difference between the starting and ending levels divided by the starting level, expressed as a percentage.

The mid-point method of calculating the price elasticity of demand avoids the problem related to___of the the price movement.

direction

If the price elasticity of supply is 5, supply is said to be____ This means that a 1 percent increase in the price of the product will lead to a___change in the quantity supplied. Supply is____to price changes. If a 1 percent change in price leads to no change in the quantity supplied, supply is___

elastic; 5%; responsive; perfectly inelastic

The___of a vertical line is zero. The ___of a vertical line is mathematically undefined.

elasticity; slope

You have been hired by the government of Kenya, which produces a lot of coffee, to examine the supply of gourmet coffee beans. Suppose you discover that the price elasticity of supply is 0.85. When you share your information with the Kenyan government, you explain that a price elasticity of supply is 0.85 means that:

if the price rises by 1 percent, the quantity supplied will increase by 0.85 percent.

What does the following equation show? %ΔQD%ΔIncome%ΔQD%ΔIncome Multiple choice question.

income elasticity

To determine how much the quantity demanded changes in response to a change in consumers' incomes, we look at

income elasticity of demand

When the price effect outweighs the quantity effect, a price

increase will cause an increase in revenue

Certain skilled labor, such as hair cutting, requires licensing or certification. This is costly and takes a long time to acquire. If this licensing requirement were removed, the price elasticity of supply for haircuts would:

increase, or become more elastic, because more people could enter the occupation.

If price elasticity of demand is -0.3 and price decreases by 2 percent, quantity demanded will___ by ____

increase; less than 2%

When demand is perfectly inelastic, consumers are

not sensitive to price

When the absolute value of the price elasticity of demand is equal to ___ we say that demand is unit-elastic.

one

When the absolute value of the price elasticity of demand is greater than____ , we say that demand is elastic.

one

When the price effect _____ the quantity effect, a price increase will cause an increase in revenue. Multiple choice question.

outweighs

Although we could describe both the cross-price elasticity of demand between paper coffee cups and plastic coffee lids and the cross-price elasticity of demand between sugar and artificial sweeteners as highly elastic, the first cross-price elasticity is negative and the second is positive. This is because:

paper coffee cups and plastic coffee lids are strong complements and sugar and artificial sweeteners are strong substitutes.

The following equation, Q2−Q1Q1Q2-Q1Q1 x 100 illustrates a change in quantity demanded.

percentage

If a good is a necessity, income elasticity of demand will be

positive but less than 1

Price elasticity of demand describes the size of the change in the quantity demanded of a good or service when its ___ changes.

price

Price elasticity of supply describes the size of the change in the quantity supplied of a good or service when its changes.

price

When there is a decrease in price, the___ effect on revenue results from selling the units of the good at a lower price.

price

When demand is inelastic,

price and total revenue move in the same direction

In the diagram below, draw the price effect and the quantity effect for a price change from $30 to $20. Based on the graph, the___is larger. Based on the graph, total revenue___

price effect; decreases

In the diagram below, draw the price effect and the quantity effect for a price change from $10 to $20. Based on the graph, the___is larger. Based on the graph, total revenue___

price effect; increases

Describe the following equation: %ΔQD%ΔP%ΔQD%ΔP Multiple choice question.

price elasticity of demand

If the cross-price elasticity of goods A and B is 0.8, these goods are: The size of the number indicates that these goods can best be described as:

substitutes; weak substitutes

The price elasticity of supplyBlank 1Blank 1 supply , Correct Unavailable is given by: %ΔQS%ΔP

supply

If producing more of a good costs a lot more than the initial quantity did,

supply will be less elastic

In France, cheese is an important and traditional part of people's meals. The French eat about six times more cheese per person as is consumed in the United States. The demand for cheese can be expected to be more income-elastic in:

the United States because the French will eat cheese regardless of income changes.

Percentage change using the mid-point method is given by

the difference in the values divided by the average value, times 100.