micro chapter 6 - elasticity

A perfectly price-inelastic demand curve is: A) downward-sloping. B) horizontal. C) upward-sloping. D) vertical.

D

If a good is a necessity with few substitutes, then demand will tend to: A) be the same as that of a luxury good. B) have price elasticity equal to 1. C) be more price-elastic. D) be more price-inelastic.

D

Elastic, inelastic, or unit elastic? When Cinema Supreme decreases ticket prices by 26%, total revenue does not change.

unit elastic

demand for a good is ______ when an increase or decrease in the good's price doesn't change total revenue.

unit elastic

Elasticity < 1 (less than 1) =

Inelastic Demand

income elasticity of demand formula

(% change in qty demanded) / (% change in income)

mid point method price elasticity of demand formula

(% change in qty demanded) / (% change in price)

cross price elasticity formula

(% change in qty of A demanded) / (% change in price of B)

Price elasticity of supply formula

(% change in qty supplied) / (% change in price)

price elasticity of demand formula

(% change in quantity demanded) / (% change in price)

mid point method % change in x formula

(Q2 - Q1) / {(Q2+Q1)/2}

% change in qty demanded or in price formula

(new-old) / (old) x 100

mid point method % change in price formula

(p2-p1) / {(p2+p1)/2}

If a 30% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B, what is the cross-price elasticity of these goods?

0 (there is no relationship between these goods)

Attina always spends 30% of her income on snarfblatts. Assume that her income increases by some percentage while the price of snarfblatts remains constant (and that all snarfblatts cost the same). What is her income elasticity of demand for snarfblatts?

1

Last week, Michelle spent $30 on caviar. Today, Michelle still spends $30 on caviar even though its price has doubled. What is Michelle\'s price elasticity of demand for caviar? (Use the midpoint formula for your calculation.)

1

In anticipation of a major hurricane hitting the Gulf Coast, the quantity gasoline of sales rise from 360 million gallons to 375 million gallons. Based on this information, what is the percent change in gasoline sales? Please specify your answer to one decimal place and use the midpoint formula.

4.1%

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is: A) equal to 1. B) greater than zero but less than 1. C) greater than 3. D) greater than 1 but less than 3.

A

If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity demanded increases from 190 bags to 210 bags, then the price elasticity of demand (by the midpoint method) is: A) 0.5. B) 1. C) 2. D) 0

A

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures: A) the responsiveness of the quantity change to the price change. B) the responsiveness of the price change to an income change. C) how much the price goes down. D) how much the equilibrium price goes up.

A

A linear demand curve has: A) a calculated price elasticity of demand that is positive. B) both elastic and inelastic price elasticities of demand. C) a constant price elasticity of demand. D) a price elasticity of demand equal to one at all prices

B

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to: A) approximately 1.33. B) 0.75. C) approximately 0.33. D) 1.

B

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: A) complementary goods. B) substitute goods. C) inferior goods. D) luxury goods.

B

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately: A) 1.50. B) 1.17. C) 0.85. D) 1.00.

B

The percentage change in quantity demanded of one good or service divided by the percentage change in the price of a related good or service is the _____ of demand. A) price elasticity B) cross-price elasticity C) quantity elasticity D) income elasticity

B

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged? A) Total revenue will remain unchanged. B) Quantity demanded will decrease; total revenue will rise. C) Quantity demanded will not change; total revenue will rise. D) Quantity demanded will stay the same; total revenue will fall.

B

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____. A) 0.2; elastic B) 0.2; inelastic C) 5; inelastic D) 5; elastic

B

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____. A) $180.50; $209 B) $209; $204.25 C) $209; $236.50 D) $236.50; $209

B

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

C

If the estimated price elasticity of demand for foreign travel is 4: A) a 20% increase in the price of foreign travel will increase quantity demanded by 80%. B) the demand for foreign travel is inelastic. C) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. D) a 10% increase in the price of foreign travel will increase quantity demanded by 40%.

C

If the price of chocolate-covered peanuts decreases from $1.15 to $1.05 and the quantity demanded increases from 190 bags to 220 bags, then the price elasticity of demand (by the midpoint method) is: A) 1. B) 2. C) greater than 1. D) 0.5.

C

Total revenue is: A) the price of a good divided by the amount of the good sold. B) the price effect times the quantity effect. C) the price of a good times the quantity of the good that is sold. D) total sales less total cost.

C

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures: A) how much the price goes down. B) the responsiveness of the price change to an income change. C) the responsiveness of the quantity change to the price change. D) how much the equilibrium price goes up.

C

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, all other things unchanged, demand will: A) increase by more than 5.7%. B) decrease by more than 5.7%. C) decrease by less than 5.7%. D) increase by about 2.9%.

D

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing: A) total revenue when price falls and demand is inelastic. B) different elasticities, because price and quantity are inversely related on the demand curve. C) total revenue when price falls and demand is elastic. D) different elasticities, depending on whether price decreases or increases.

D

Elasticity > 1 (greater than 1) =

Elastic Demand

TRUE OR FALSE A key consideration as to whether the price elasticity of supply is elastic or inelastic is whether the good supplied is a luxury item

FALSE

TRUE OR FALSE the short-run elasticity of supply is larger than the long-run elasticity of supply because changes in equilibrium will adjust elasticity accordingly

FALSE

TRUE OR FALSE when supply is perfectly inelastic, a change in demand has no effect on the price

FALSE

TRUE OR FALSE when the price increases, total revenue always increases because of the price effect: producers receive a higher price for the good.

FALSE

TRUE OR FALSE A swifter floor sweep and a broom would have a positive cross-price elasticity of demand.

TRUE

Elasticity = 1 (equal to 1) =

Unit Elastic

Elastic, inelastic, or unit elastic? When Ruko, a device used to stream movies at home, increases prices by 45% total revenue decreases by 69%.

elastic

demand for a good is ______ when an increase in the good's price reduces total revenue. the quantity effect is stronger than the price effect.

elastic

Elastic, inelastic, or unit elastic? When BlueBox, a DVD rental kiosk, increases its prices by 58%, total revenue increases by 22%.

inelastic

demand for a good is ______ when a higher price increases total revenue. the price effect is stronger than the quantity effect.

inelastic

when inputs are readily available, the price elasticity of supply will tend to be _______

large

the _______ the share of income spent on the good, the more elastic the demand.

larger

the price elasticity of supply tends to be _______ the longer the period that producers have to respond to a price change.

larger

The fewer the substitutes the __________ demand.

less elastic

the price elasticity of demand tends to be _________ if the good is a necessity

less elastic

Over longer periods of time demand tends to become _________.

more elastic

the price elasticity of demand will tend to be ________ if there are close substitutes

more elastic

when there is a positive income elasticity it is a _________ good.

normal

demand is _________ when any price increase will cause the qty demanded to drop to zero. demand curve is a horizontal line and price elasticity of demand is ∞

perfectly elastic

Demand is ___________ when qty demanded doesn't respond to changes in price. demand curve is a vertical line and price elasticity of demand = 0

perfectly inelastic

when the cross-price elasticity is positive, the two goods are ___________.

substitutes

price effect

the change in price times the new quantity. after a price increase, each unit sold sells at a higher price, which tends to raise revenue.

quantity effect

the change in quantity sold times the original price. After a price increase, fewer units are sold, which tend to lower revenue.