micro 5

__________ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price).

Elasticity

If cola and iced tea are good substitutes for consumers, then it is likely that:

their cross price elasticities are greater than zero.

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

When demand is inelastic:

consumers are not very responsive to changes in price.

Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.

elastic

Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price.

inelastic

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________.

inelastic

When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________.

inelastic

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________.

price

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price.

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:

total revenue will decrease.

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price.

unit elastic

Supply is said to be ____________ when the quantity supplied is very responsive to changes in price.

elastic

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________.

elastic

Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

If the supply curve for a product is horizontal, then the elasticity of supply is:

equal to infinity.

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:

fall and the equilibrium quantity to stay the same.

A perfectly elastic supply curve is:

horizontal.

The longer the time period considered, the more the elasticity of supply tends to:

increase

If the demand curve is perfectly elastic, then an increase in supply will:

increase the quantity exchanged but result in no change in the price.

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

increasing the price of game tickets because demand is inelastic.

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.

inelastic; elastic

A demand or supply curve with ______________ would be horizontal in appearance.

infinite elasticity

The elasticity of supply is defined as the ________ change in quantity supplied divided by the _______ change in price.

percentage; percentage

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:

rise and the equilibrium quantity to stay the same.

If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to:

stay the same and the equilibrium quantity to fall.

Price elasticity of demand is defined as:

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