Micro Chapter 5 Elasticity and its Application

In general, a flatter demand curve is more likely to be

price elastic

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000 Using the midpoint formula, what is the price elasticity of demand for cable television in Small Town?

(20,000-30,000) / ((20,000+30,000)/2) X100 ----------------------------------------------------- (40-30) / ((40+30)/2) X100 10000/25000 .4x100=40 _______________ = 10/35 .28x100=.28 1.4

If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is

.15

If the income elasticity of demand for a good is negative, it must be

An inferior good

If the cross=price elasticity between two goods is negative, the two goods are likely to be

Complements

IF supply is price inelastic, the value of the price elasticity of supply must be

Less than 1

If the demand curve for a good is price inelastic, the good is a ________

Necessity

If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, the fisherman's price elasticity of supply for fresh fish is

One

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

Price Elastic

If there is excess capacity in the production facility, it is likely that the firm's supply curve is

Price elastic

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

Reduce total revenue to farmers as a whole because the demand for food is inelastic

A decrease in supply, will increase total revenue in that market if

Supply is price Elastic

The demand for which of the following is likely to be the most price inelastic? Airline Tickets Bus tickets Taxi Rides Transportation

Transportation

If an increase in the price of a good has no impact on the total revenue in that market, demand must be

Unit Price elastic

If consumers think that there are very few substitutes for a good, then

demand would tend to be price inelastic

If demand is linear, then price elasticity of demand is

elastic in the upper portion and inelastic in the lower portion

In general, a steeper demand curve is more likely to be

price inelastic

The price elasticity of demand is defined as

the percentage change in the QD of a good divided by the percentage change in the price of that good

If a supply curve for a good is price elastic, then

the quantity supplied is sensitive to changes in the price of that good