Microeconomics Chapter 6

What happens when the quantity demanded is very responsive to changes in​ price?

The percentage change in quantity demanded will be greater than the percentage change in price.

basically, if the percentage change of price of a good is EQUAL to the percentage change of quantity demanded, it can be considered

Unit-elastic

Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.

$3.62

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:

-1.25

If a 11 percent increase in the price of Cheerios causes a 14 percent reduction in the number of boxes of cereal​ demanded, the price elasticity of demand for Cheerios is ______________________

-1.27 and the demand is elastic

factors of price elasticity of demand

-availability of substitutes -passage of time -whether the good is luxury or necessity -definition of the market -share of the good in the consumers budget

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?

an inferior good

If the demand for orange juice is elastic​, will an increase in the price of orange juice increase or decrease the revenue received by orange juice​ sellers?

decrease

cutting price when demand is inelastic will __________

decrease total revenue

cutting price when demand is unit elastic will ___________

do nothing to total revenue

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.

elastic

If the supply of Good B is perfectly elastic and price falls the quantity supplied will:

fall to zero

The more substitutes that exist for a particular product, the __________ the price elasticity of demand.

greater

One study found that the price elasticity of demand for soda is minus−​0.78, while the price elasticity of demand for​ Coca-Cola is minus−1.22.

greater than it is for soda as a product because there are more substitutes for​ Coca-Cola than soda.

At current prices of a highly addictive drug the demand for the drug is highly price:

inelastic

The price elasticity of demand for a particular brand of raisin bran​ is, in absolute​ value,

larger than the price elasticity of demand for all breakfast cereals.

a product is inelastic if in absolute value it is _____________

less than one in absolute value

In​ general, the demand for a good will be​ _________ elastic the​ ___________ the share of the good in the average​ consumer's budget.

less, smaller

If the income elasticity of demand is greater than​ 1, then the good is a ___________________

luxury

when demand curves intersect,______________________

the flatter curve is more elastic

Why​ isn't elasticity just measured by the slope of the demand​ curve?

the measurement of slope is sensitive to the units chosen for quantity and price

If prices rise the quantity supplied will be greater:

the more time that passes

Income elasticity of demand is

the percentage change in quantity demanded divided by the percentage change in income.

What is the cross-price elasticity of demand for two goods that are unrelated?

zero

if two products are unrelated, the cross price elasticity will be ________________

zero

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?

10% rise

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.

an increase, positive

Personal computers and computer display monitors are:

complements

Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

When you compute a price elasticity of demand the answer is always:

negative

formula for income elasticity of demand

percentage change in quantity demanded ------------------------------------------------- percentage change in income

The price of organic apples falls and apple growers find that their revenue increases. Is the demand for organic apples elastic or​ inelastic?

elastic

basically, if you do the price elasticity formula for a good and it comes out positive, it can be considered ____________

elastic

The price elasticity of demand in the United States for crude oil has been estimated to be minus−0.061 in the short run and minus−0.453 in the long run. the demand for crude oil is___________________

is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found.

The Energy Information Administration estimated that in​ 2012, American consumers spent 4 percent of their incomes on gasoline. If, instead, consumers spent 8 percent of their incomes on​ gasoline, the price elasticity of demand likely would be

higher

cutting price when demand is elastic will __________________

increase total revenue

If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.

increase, 8.0

A perfectly inelastic supply curve:

indicates quantity supplied does not respond to a change in price

The more substitutes available for a​ product, the greater the price elasticity of demand.

True

The key determinants of the price elasticity of demand for a product​ are:

availability of close​ substitutes, passage of​ time, necessities versus​ luxuries, definition of the​ market, and share of the good in the​ consumer's budget.

which determinant of price elasticity of demand is most important

availability of substitutes

the price elasticity of demand will always be a _____________ number

negative

Firms often rely on market experiments to calculate the price elasticity of demand for a new product.

true

The​ cross-price elasticity of demand is

the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.

elasticity

the responsiveness of one economic variable from the change of another economic variable

price elasticity of demand

the responsiveness of the quantity demanded of a good in relation to changes in its price

price elasticity of supply

the responsiveness of the quantity supplied of a good in relation to changes in its price.

price elasticity of demand is not the same as ___________________

the slope of the demand curve

the more _________ that passes, the more elastic the demand for the product will be

time

total revenue

total amount of funds a firm receives for selling goods

The entrance fee into Yellowstone National Park in northwestern Wyoming is​ "$25 for a​ private, noncommercial​ vehicle; $20 for each snowmobile or​ motorcycle; or​ $12 for each visitor 16 and older entering by​ foot, bike,​ ski, etc." The fee provides the visitor with a​ seven-day entrance permit into Yellowstone and nearby Grand Teton National Park. Of the three ways to enter the parklong dash—in a​ private, noncommercial​ vehicle; on a snowmobile or​ motorcycle; and by​ foot, bike, or skilong dash—which way would you expect to have the largest price elasticity of​ demand, and which would you expect to have the smallest price elasticity of​ demand?

The​ private, noncommercial vehicle has the largest price elasticity of demand and visitors 16 and older entering by​ foot, bike,​ ski, etc. have the smallest price elasticity of demand.

For which of the following products is the price elasticity of demand​ (in absolute​ value) the​ largest? Tide Liquid Forumla Automobiles Milk Cigarettes

Tide liquid formula

2.0

Using the initial value formula, the value of price elasticity of supply between points s and t equals:

left

Which of these demand curves shows a perfectly inelastic demand?

If the income elasticity of SUVs is greater than 1, what is the good considered?

a luxury

when comparing price elasticity of demand to another we compare the _____________________ of both goods

absolute value

formula for price elasticity of demand

percentage change in quantity demanded ------------------------------------------------ percentage change in price

when the quantity demanded of a product is NOT elastic to the price, then _______________________

percentage change in quantity demanded will be less then the percentage change in price

cross price elasticity of demand

percentage change in the quantity demanded one of good divided by the percentage change of another good

Economists avoid confusion over units in the computation of elasticity by using:

percentage changes

economists use ______________________ to measure the price elasticity of demand

percentage changes

if a supply curve is a horizontal line, it is

perfectly elastic

if the demand curve is a horizontal line, it is ______________

perfectly elastic

if a supply curve is a vertical line, it is

perfectly inelastic

if the demand curve is a vertical line, it is ____________

perfectly inelastic

because supply curves are upward sloping price elasticity of supply will always be a _________ number

positive

if the price of a substitute increase, cross price elasticity will be ___________________

positive

The price elasticity of supply always has a:

positive value

For a normal​ good, the income elasticity of demand will be

positive, but for an inferior​ good, the income elasticity of demand will be negative.

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.

price elasticity of demand

According to an article in the New York Times​, in 2011 the Port Authority of New York and New Jersey was planning to increase the tolls on the bridges and tunnels crossing the Hudson River by as much as 50 percent. According to the​ article, "Revenue from the . . . higher tolls would raise an additional​ $720 million for the agency. . .​ ." The Port Authority might be reasonably confident about the​ $720 million revenue for the agency ___________

because they know that the percentage decrease in the quantity of vehicles will be less than the percentage increase in tolls received.

If the cross-price elasticity of demand between two products is -3.0, then the two products are:

complements

If the​ cross-price elasticity of demand is​ negative, then the products​ are:

complements

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25​ percent, demand for Red Bull is​ _______ in this range.

elastic

According to an article in the New York Times​, in 2011 the Port Authority of New York and New Jersey was planning to increase the tolls on the bridges and tunnels crossing the Hudson River by as much as 50 percent. According to the​ article, "Revenue from the . . . higher tolls would raise an additional​ $720 million for the agency. . .​ ." The Port Authority is assuming that the demand for using bridges and tunnels crossing the Hudson is ______________

inelastic

basically, if you do the price elasticity formula for a good and it comes out negative, it can be considered ____________

inelastic

if price elasticity of supply is less than 1, it is considered

inelastic

The disappearance of the family farm can be partially attributed to the fact that the elasticity of demand for wheat is __________, while at the same time, the income elasticity for wheat is __________.

inelastic, low

the ___________ the share the good is in a consumers budget, the more elastic it will be

more

An article in the Dallas Morning News discussed the market for green cars such as hybrid​ gasoline, electric​ cars, and diesel cars. One factor the article mentioned as affecting the market for green cars was the increasing gas mileage of conventional​ gasoline-powered cars. This factor is likely to cause the demand for green cars to become

more price elastic

In the 2010 holiday​ season, Steve Richardson decided to cut the prices of his​ hand-crafted wooden puzzles to increase sales. According to a newspaper​ account, "the number of orders at Stave Puzzles​ Inc., his​ Norwich, Vt.​ business, hasn't been enough to offset the price​ cuts."

must be inelastic because the percentage increase in the quantity demanded for orders is less than the percentage decrease in price of the puzzles.

the more __________ we define a market, the more elastic it will be

narrow

If the income elasticity of demand is positive but less than​ 1, then the good is a

necessity

if the price of a complement increase, cross price elasticity will be ___________________

negative

Which of the following goods is probably the most highly income elastic? Private Education, Food, salt

private education

when consumer income rises,____________________

quantity demanded for luxury goods will rise; quantity demand for inferior goods will fall

when consumer income rises, _________________________

quantity demanded for normal goods will rise

perfectly inelastic demand curve

quantity demanded is completely unchanged by change in price

law of demand says that when the price of a good falls then, _____________________

quantity demanded will increase

The midpoint method for calculating price elasticity of demand​ is:

the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices.

What is the formula for the price elasticity of​ demand?

the percentage change in quantity demanded divided by the percentage change in price.