Micro End of chapter 5 questions

Which of the following accurately explains how to determine whether Nike and Reebok are in competition with each other?

- Calculate cross-elasticity of demand. The larger the positive coefficient, the greater the substitutability between the two goods.

Assume the cross elasticity of demand for a car tires with respect to the price of cars is -2. When the price of cars increases by 10%, the quantity demanded of car tires will______ by ____%.

- decrease - 20%

Suppose the price of elasticity of demand for farm products is inelastic and the federal government wants to follow a policy of increasing income for farmers. To accomplish this goal, the government will promote the programs that______ the price of farm products, knowing that the percentage change in price will be______ the percentage______ in quantity.

- increase - greater than - decrease

suppose a movie theater raises the price of popcorn by 10%, but consumers do not buy any less popcorn. The demand for popcorn at this theater is______. As a result of the price increase, total revenue will_________.

- perfectly inelastic - increase by exactly 10% Explain: when demand is perfectly inelastic, the quantity demanded does not change as a price changes. this means that the revenue will change by exactly the same percentage as the price changes.

Suppose a university raises its tuition from $2,500 to $3,000. as a result, student enrollment falls from 4500 to 4400. using the midpoint formula, the price elasticity of demand is_____, which suggest that the demand is_____ between these points.

-(-0.12) - inelastic

Opponents of increasing the tax on gasoline argue that the big oil companies just passed the tax along to the consumers. in the short run, demand for gas is very_____. This means that oil companies_____ effectively pass most of the tax on the consumer in the short run.

-inelastic -can

Suppose the income in the stack city of demand for furniture is 3, and the income elasticity of demand for physical services is 0.3. a recession occurs in the global economy that reduces all consumers incomes by 10%. Consumers will_____ their purchases of furniture by______%, whereas the purchases of decision services will_____by____%. This is because physician services are_____ of a necessity than furniture.

- reduce -30% -decrease -3% -more

Suppose the price of elasticity of demand for farm products is inelastic and the federal government wants to follow a policy of increasing income for farmers. In this scenario, the government knows that the percentage increase in price of farm products will be______ the percentage_______ in quantity. Therefore, the gov. will promote the programs that ______ the price of farm products in order to increase the income of Farmers.

-greater than - decrease - increase

Which of the following two goods has the lower price elasticity of demand? Cars or Salt.

Salt Explain: In general, the more substitutes there are for a product, the higher the elasticity of demand for that product. Salt has a lower price elasticity of demand than Cars. First, salt has virtually no substitutes. Also, cars take a large share of a consumer's budget, and there are many substitutes for transportation, such as walking, bicycling, taxi cabs, bosses, and car rentals.

Price falls and demand is unitary elastic.

Total revenue remains unchanged, because when demand is unitary elastic, the percentage decrease in price is equal to the percentage increase in quantity.

Suppose the price elasticity of demand for used cars is estimated to be 3. Demand for used cars is_______. if the price of used cars rises by 10%, the quantity demanded of used cars will go________, and the total revenue will______.

-elastic - down by 30% - decrease Explain: Elasticity of more than one signify elastic demand. When demand is elastic, percentage change in quantity demanded is greater than the percentage change in price. In this scenario since the price elasticity of demand is 3, every 1% change in the price will result in a 3% change in the quantity demanded (in the opposite direction). This means that when the price rises by 10%, quantity demanded will decrease by 30%. Because the percentage decrease in quantity is significantly greater than the percentage increase in price, total revenue the product of price and quantity will decrease. Know that should the price elasticity of demand be less than one demand would be inelastic. The percentage decrease in quantity would be smaller than the percentage increase in price, and total revenue would increase.

Opponents of increasing the tax on gasoline argue that the big oil companies just passed the tax along to the consumers. In the long run, demand for gas is more_____ than in short run. This means that oil companies pass____ of the tax on to the consumer in the long run than they do in the short run.

-elastic - less

Price rises and demand is inelastic.

Total revenue increases, because when demand is elastic the percentage increase in price is greater than the percentage decrease in quantity.

True or False: Consumers prefer that government tax products with elastic, rather than inelastic, demand because this reduces the shared of tax ultimately paid by consumers.

True Explain: tax incidence is the amount of a tax that falls on consumers and producers. The tax incidence is directly affected by relative of the density of the product. consumers can easily substitute products with a relatively high price elasticity of demand and does have a lower tax incidence.

The Energizer Bunny that "keeps going and going" has been a very successful ad campaign for that brand of batteries. Through advertising, the company tries to lead you to consider only Energizer when buying batteries for all your devices in order to make the demand for this product____elastic. if the company achieves this, it can raise the price of its product and generate relatively____ revenue.

-less -more Explain: When a company tries to keep you from considering substitutes, it is attempting to make the demand for its product more inelastic or less elastic. A company does this because it can then raise the price of the good and generate more revenue, because quantity sold will not fall very much.

True or False: If the price of a good or service increases and the total revenue received by the seller declines, the demand for this good over this segment of the demand curve is inelastic.

False Explain: When demand is elastic, percentage change in quantity demanded is greater than the percentage change in price. This means you can increase the price a little and have the quantity sold decrease a lot. The large drop and total quantity will overpower the increase in price, causing total revenue to decrease. Note that in case of inelastic demand (when the quantity demanded is less responsive to a change in price), an increase in price could offset the decrease in quantity so that the revenue could increase.

Price rises and demand is unitary elastic.

Total revenue remains unchanged, because when demand is unitary elastic, the percentage increases in price is equal to the percentage decrease in quantity.

Jacques loves Mello Yello and will spend $10 per week on the product no matter what the price. Jacques's demand for Mello Yello is

Unitary elastic Explain: unitary elastic demand occurs when there is a 1% change in quantity demanded in response to a 1% change in price. demand is unitary elastic when the elasticity coefficient equals 1 and total revenue remains constant as a price changes.

If the price of a good or service increases and the total revenue received by the seller declines, the demand for this good over this segment of the demand curve is _________.

elastic

Suppose the price of elasticity of demand for farm products is inelastic and the federal government wants to follow a policy of increasing income for farmers. To accomplish this goal, the government will promote the programs that_______________ the price of farm products. Which all of the following are examples of such programs? Check all that apply.

increase(for blank) -purchasing farm land from Farmers -tax incentives to buy local farm products -purchasing farm products directly Explain: When demand is inelastic, the percentage change in price causes a smaller percentage change in quantity. This means the government can increase the price, but the quantity sold will decrease by very little. Because the increase in price will overpower the decrease in quantity demanded, Farmers revenue will increase. Programs that increase the price of farm products may include advertising farm products, purchasing farm products directly, or giving tax incentives for people to buy local farm products.

Price rises and demand is elastic.

total revenue decreases, because when demand is elastic, the percentage increase in prices smaller than the percentage decrease in quantity.

Price falls and demand is inelastic.

total revenue decreases, because when demand is inelastic, the percentage decrease in price is greater than the percentage decrease in quantity.

Price falls and the demand is elastic.

total revenue increases, because when the demand is elastic, the percentage decrease in price is smaller than the percentage increase in quantity.

True or False: If the price of a good or service increases and the total revenue received by the seller declines, the demand for this good over this segment of the demand curve is elastic.

true