Microeconomics Ch 5 Homework

In general, in order for a price decrease to cause a decrease in total revenue, demand must be_______ .

inelastic

Suppose the price of bikes is currently $25 per bike, shown as point B on the initial graph. Because the demand between points A and B is_________ , a $25-per-bike increase in price will lead to________ in total revenue per day.

inelastic, an increase

If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Peacock______ from 300 rooms per night to 350 rooms per night. Therefore, the income elasticity of demand is_______ , meaning that hotel rooms at the Peacock area normal good .

rises, positive

If average household income increases by 10%, from $50,000 to $55,000 per year, the quantity of rooms demanded at the Triple Sevens________ from 150 rooms per night to 250 rooms per night. Therefore, the income elasticity of demand is________ , meaning that hotel rooms at the Triple Sevens are________

rises, positive, a normal good

True or False: The value of the price elasticity of demand is not equal to the slope of the demand curve.

true

In general, in order for a price increase to cause a decrease in total revenue, demand must be________

elastic

Which of the following three goods is most likely to be classified as a luxury good ? A. Aces B. Horses C. Spades Since the income elasticity of demand is largest for aces, the quantity of aces demanded is most responsive to changes in income. Therefore, it is the good most likely to be considered a luxury in Pokerville.

A. Aces

A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand? A. Amputation procedures for diabetes sufferers B. Diamond necklace

A. Amputation procedures for diabetes sufferers

True or False: For high levels of quantity supplied where firms have reached near maximum capacity, supply becomes more elastic because firms may need to invest in additional capital in order to increase production further.

False

A good without any close substitutes is likely to have relatively_______ demand, since consumers cannot easily switch to a substitute good if the price of the good rises.

Inelastic

True or False: For high levels of quantity supplied where firms have reached near maximum capacity, supply becomes less elastic because firms may need to invest in additional capital in order to increase production further.

True

Suppose the price of bikes is currently $80 per bike, shown as point A on the initial graph. Because the demand between points A and B is_________, a $10-per-bike decrease in price will lead to_______ in total revenue per day.

elastic, an increase

Triple Sevens is debating decreasing the price of its rooms to $325 per night. Under the initial demand conditions, you can see that this would cause its total revenue to_______ . Decreasing the price will always have this effect on revenue when Triple Sevens is operating on the_______ portion of its demand curve.

increase, elastic

Suppose that during the past year, the price of a laptop computer fell from $2,100 to $1,820. During the same time period, consumer sales increased from 429,000 to 530,000 laptops. Calculate the elasticity of demand between these two price-quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers.

Average Quantity 479500 Average Price 1960 add the original quantity and the new quantity, and then dividing by two. Do the same for the average price. Chance (Quantity) 50500 Change (Price)-280 subtract the original quantity/price from the new quantity/price. Percentage Change (Quantity) 21.06% Percentage Change (Price) -14.29% divide the change in quantity/price by the average quantity/price. Using the midpoint method, the elasticity of demand for laptops is about 1.4 divide the percentage change in quantity demanded by the percentage change in price, ignoring the negative sign.

Data collected from the economy of Royal City reveals that an 11% decrease in income leads to the following changes: A 9% increase in the quantity of clubs demanded A 10% decrease in the quantity of flops demanded A 30% decrease in the quantity of diamonds demanded

Clubs Income Elasticity of Demand: -0.82 - Inferior Good Flops Income Elasticity of Demand 0.91 - Normal Good Diamonds Income Elasticity of Demand 2.73 - Normal Good

Poornima is a stay-at-home parent who lives in San Francisco and teaches tennis lessons for extra cash. At a wage of $30 per hour, she is willing to teach 3 hours per week. At $50 per hour, she is willing to teach 7 hours per week. Using the midpoint method, the elasticity of Poornima's labor supply between the wages of $30 and $50 per hour is approximately_____ , which means that Poornima's supply of labor over this wage range is_____ .

1.6, elastic

Which of the following three goods is most likely to be classified as a luxury good ? A. Diamonds B. Clubs C. Flops

A. Diamonds

Data collected from the economy of Pokerville reveals that an 18% increase in income leads to the following changes: A 29% increase in the quantity of aces demanded A 17% decrease in the quantity of spades demanded A 14% increase in the quantity of horses demanded

Aces Income Elasticity of Demand: 1.61 - Normal Good Spades Income Elasticity of Demand -0.94 - Inferior Good Horses Income Elasticity of Demand 0.78 - Normal Good

Run-of-the-Mills provides your marketing firm with the following data: When the price of penguin patties increases by 4%, the quantity of flopsicles sold decreases by 5% and the quantity of cannies sold increases by 3%. Your job is to use the cross-price elasticity between penguin patties and the other goods to determine which goods your marketing firm should advertise together.

Flopsicles Cross-Price Elasticity of Demand: -1.25 Cannies Cross-Price Elasticity of Demand: 0.75 Flopsicles Complement or Substitute: Complement Cannies Complement or Substitute: Substitute Flopsicles Recommend Marketing with Penguin Patties: Yes Cannies Recommend Marketing with Penguin Patties: No

Run-of-the-Mills provides your marketing firm with the following data: When the price of guppy gummies decreases by 5%, the quantity of raskels sold increases by 4% and the quantity of kipples sold decreases by 6%. Your job is to use the cross-price elasticity between guppy gummies and the other goods to determine which goods your marketing firm should advertise together.

Raskels Cross-Price Elasticity of Demand: -0.8 (decrease = negative) Kipples Cross-Price Elasticity of Demand: 1.2 Raskels Complement or Substitute: Complement Kipples Complement or Substitute: Substitute Raskels Recommend Marketing with Guppy Gummies: Yes Kipples Recommend Marketing with Guppy Gummies: No Two goods are said to be complements when an increase in the price of one good decreases the quantity demanded for the other or when a decrease in the price of one good increases the quantity demanded for the other. On the other hand, two goods are said to be substitutes when an increase in the price of one good increases the quantity demanded for the other or when a decrease in the price of one good decreases the quantity demanded for the other. Raskels are a complement to guppy gummies, and kipples are a substitute for guppy gummies. Your marketing firm should advertise guppy gummies and raskels together.

Peacock is debating decreasing the price of its rooms to $175 per night. Under the initial demand conditions, you can see that this would cause its total revenue to_______ . Decreasing the price will always have this effect on revenue when Peacock is operating on the _______ portion of its demand curve.

decrease, inelastic

A good with many close substitutes is likely to have relatively_________ demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.

elastic

If the price of an airline ticket from SFO to LAS were to increase by 50%, from $100 to $150 roundtrip, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Triple Sevens________ from 150 rooms per night to 100 rooms per night. Because the cross-price elasticity of demand is________ , hotel rooms at the Triple Sevens and airline trips between SFO and LAS are_________ .

falls, negative, complements

If the price of a room at the Grandiose were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock_______ from 300 rooms per night to 200 rooms per night. Because the cross-price elasticity of demand is________ , hotel rooms at the Peacock and hotel rooms at the Grandiose are________ .

falls, positive, substitutes

If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public transportation. Therefore, the demand for gasoline is______ elastic in the short run than in the long run.

less

Other things being equal, the demand for natural gas will tend to be______ elastic in the short run than in the long run.

less