Microeconomics Chapter 5: Elascity

Ashley Furniture sells 13,000 couches per month at a price of $800 per couch. When the price falls to $600, the quantity sold rises to 18,500. Use the midpoint formula to calculate the absolute value for price elasticity of demand for couches at Ashley Furniture.

1.22

If income rises by 10% and the quantity demanded of an item falls by 30%, the income elasticity of demand for this item is:

-3.

Janelle recently received a promotion at her job, increasing her income from $940 per week to $1,060 per week. As a result, she decides to purchase 9% more sushi per week. Computed using the midpoint method, the income elasticity of Janelle's demand for sushi is:

0.75.

A measure of how responsive buyers are to price changes is the:

price elasticity of demand.

The state of Massachusetts recently saw a 10% increase in the price of electricity, which brought about a 2% fall in the quantity of electricity consumed. The price elasticity of demand is equal to _____, and demand is described as _____.

0.2; inelastic

A city economist is consulting with the public utility companies to determine an optimal pricing plan. When the price of water usage falls by 1%, the quantity demanded rises by 0.44%. The absolute value of the price elasticity of demand for water usage is _____.

0.44

The price of chicken breast rises from $3.30 per pound to $3.63 per pound. In response to this price change, the quantity demanded for chicken breast falls by 40%. The absolute value of the price elasticity of demand for chicken breast is _____, and the price elasticity of demand is _____.

4.2; elastic

When a popular comedian announces a tour, tickets often sell out quickly. However, it is quite common for the tour coordinator to later announce additional shows in the form of matinees and late-evening performances. Why would the tour coordinator include unpublicized additional shows in the tour schedule?

Additional shows create extra capacity and increase the tour's price elasticity of supply.

The demand for disposable diapers is inelastic. Which statement would explain this phenomenon?

Disposable diapers are a necessity for most parents of infants.

The cross-price elasticity of demand between Fanta and Dr. Pepper has been estimated at 0.61. If the price of Dr. Pepper falls by 10%, the quantity demanded of Fanta will:

decrease by 6.1%.

You are an economist for a prestigious private university, and the Board of Trustees tasks you with determining how much a tuition increase would impact university enrollment for different types of students. The proposed tuition increase is 10%. The absolute value of the price elasticity of demand for legacy students, that is, students whose parents graduated from the university, is 0.15 and for nonlegacy students it is 0.33. The demand curve for legacy students is _____ elastic than the demand curve for nonlegacy students. The rise in tuition would lower legacy student enrollment by _____%.

less; 1.5

Gasoline prices have been rising. As time passes, people will adjust to the higher price, and the demand for gasoline becomes:

more elastic.

In the markets for grocery and household items, some consumers have more elastic responses than others. Stores recognize this and often offer price reductions in the form of coupons. The price elasticity of demand for people who use coupons is _____ elastic than for other consumers because coupon users _____.

more; are willing to search for a low-cost alternative

(Figure: Supply Curve for Olive Oil) Graph C shows the supply curve for olive oil. The figure depicts a supply curve that is:

perfectly elastic.

Much like toilet paper, toothpaste is a necessity. The income elasticity of demand for toothpaste is likely to be _____ and _____.

positive; close to 0

If quantity demanded responds substantially to a relatively small change in price, demand is:

price-elastic.

((Figure: Demand Curves) The figure shows four different demand curves for four different products. Which of the products has a perfectly inelastic demand curve?

product A

Suppose the cross-price elasticity of demand for apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is -0.80. This means that apple sauce and avocados are _____, whereas soda and oranges are _____.

substitutes; complements

In a small town in Kansas, the owner of the town's only gas station claims that he will sell the same quantity of gas no matter how high or low the price. If his assertion is correct, the demand curve for gas at his station must be _____, and the price elasticity is _____.

vertical; zero

If the income elasticity of demand for a good is _____, the good is said to be _____.

negative; inferior