Microeconomics: Chapter 5
If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is:
1.00
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 method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small Town?
1.4
The price elasticity of demand is defined as:
The percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.
A decrease in supply (shift to the left) will increase total revenue in that market if:
Demand is price inelastic.
The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).
True
If consumers think that there are very few substitutes for a good, then:
Demand would tend to be price inelastic.
The price elasticity of demand is defined as the percentage change in the price of that good divided by the percentage change in quantity demanded of that good.
False
If supply is price inelastic, the value of the price elasticity of supply must be:
Less than 1.
The demand for which of the following is likely to be the most price inelastic?
Transportation.
If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good.
True
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 demand is linear (a straight line), then price elasticity of demand is:
Elastic in the upper portion and inelastic in the lower portion.
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. At which of the following prices does Small Town Cablevision earn the greatest total revenue?
€30 per month
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 a production facility, it is likely that the firm's supply curve is:
Price elastic.
If the cross-price elasticity of demand between two goods is positive, the goods are likely to be complements.
False
If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price inelastic.
False
In general, a flatter demand curve is more likely to be:
Price elastic.
In general, a steeper supply curve is more likely to be:
Price inelastic.
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.
Which of the following would cause a demand curve for a good to be price inelastic?
The good is a necessity.
An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.
False
If a demand curve is linear, the price elasticity of demand is constant along it.
False
The demand for a necessity such as petrol tends to be elastic.
False
The demand for aspirin over one month should be more elastic than the demand for aspirin over one year.
False
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:
Zero.
If a supply curve for a good is price elastic, then:
The quantity supplied is sensitive to changes in the price of that good.
If the demand for a good is price inelastic, an increase in its price will increase total revenue in that market.
True
If the price elasticity of supply for blue jeans is 1.3, an increase in the price of blue jeans of 10 percent would increase the quantity supplied of blue jeans by 13 percent.
True
The demand for tires should be more inelastic than the demand for Michelin brand tires.
True
The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.
True
The supply of cars for this week is likely to be more price inelastic than the supply of cars for this year.
True
Using the midpoint method to calculate elasticity, if an increase in the price of pencils from €0.10 to €0.20 reduces the quantity demanded from 1000 pencils to 500 pencils, then the demand for pencils is unit price elastic.
True
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.
