micro chapter 5 graded assignment

Rank the following from the least elastic (inelastic) to most elastic. (Hint: think about the substitutes for each of these goods when ranking them).

demand for food demand for dessert demand for cookies demand for oreos

If the country enters a period of prosperity, resulting in consumer incomes increasing by 4% and the income elasticity of a good is 0.8, what will happen to the demand for that good as a result?

demand will increase by 3.2%

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

elastic

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

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

fall and the equilibrium quantity to stay the same

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

their cross price elasticities are greater than zero

Sometimes consumers purchase goods because of "conspicuous consumption"; i.e., they want others to know that they can afford to buy the goods. There are many examples of these goods, such as Rolex watches, Coach purses, and flying first class. What would you expect the income elasticity of demand to be for these goods?

these are luxury goods, so income elasticity would be greater than 1

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

Is the demand for a container of salt likely to be inelastic or elastic? Why?

inelastic because salt is a necessary dietary component and inelastic because for most people salt is a very small part of their budget

If the income elasticity of a good is 0.8, what do we know about the good?

it is an elastic good

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

Suppose you know that the price elasticity of demand for your product is 0.5, and you are thinking about raising your price by 8%. How much can you expect quantity to decrease?

4%

If the government taxes car producers, what will happen in the market for cars?

the supply curve will shift to the left

Ceteris paribus, an increase in an inelastic demand will cause _______ change in the equilibrium price than the same increase in an elastic demand.

a greater

Ceteris paribus, an increase in an inelastic demand will cause _______change in the equilibrium quantity than the same increase in an elastic demand.

a greater

Rank the following in order from the least elastic demand to most elastic:

allergy medicine that is prescribed by a physician any over-the-counter allergy medicine Sudafed cold and allergy medicine

Which of the following goods would be the most likely to be subject to a government-imposed tax?

bottles of alcohol, such as whiskey and gin

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

cross-price elasticity of demand for iced tea is -2

The suppliers of ____________are more likely to have a tax imposed on their production.

gasoline

A perfectly elastic supply curve is:

horizontal

A business should ___________ the price of a good with an inelastic demand if it wants to increase revenues.

increase

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

increase

A major city was thinking about increasing its bus fares and commissioned a study to estimate the price elasticity of demand. The study estimated that elasticity was 0.4. What action should the city have taken to increase revenue from bus fares?

increase fares

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

If you were selling a product with an elasticity of 1.6 and you wanted to increase your revenue, what should you do to the price?

lower price

If a man spends approximately 45% of his income on air travel and his sister only spends about 2% of her income on air travel (and that is the only difference), would the man's demand for air travel be less or more elastic than his sister's?

more

The price elasticity of demand (in absolute value) will be _________________ if demand is elastic.

more than one

Assume that as your income increases, your consumption of burgers decreases. We can assume that your income elasticity of demand for burgers is what?

negative

A firm has a choice of raising or lowering its price. If the firm wishes to increase its revenues (the price times the quantity sold), what should it do?

raise price when demand is inelastic, because the revenues gained from the price increase will be larger than the revenues lost from the smaller quantity sold

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price

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

Which of the following is likely to have the largest elasticity of supply?

the producer of vanilla ice cream

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