AAEC Chapter 4- Elasticity

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is:

(P/Q) x (1/slope) = use to find Price elasticity

If consumers completely cease purchasing a product when its price increases by any amount, then demand is:

*Perfectly Elastic - demand curve is horizontal- The price elasticity of demand is infinite

. If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that:

.the price elasticity of demand at the original price was greater than one.

When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?

0.2

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:

0.3

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to

0.5

A perfectly elastic demand curve has a slope of ______ while a perfectly inelastic demand curve has a slope of ______.

0; infinity

. If a 10% decrease in the price of a good leads to a 20% increase in the quantity demanded, then what is the price elasticity of demand?

2

If the absolute value of the price elasticity of demand for tickets to a football game is 2, then if the price increases by 1%, quantity demanded decreases by:

2%

If 20% increase in the price of a good leads to a 60% decrease in the quantity demanded, then what is the price elasticity of demand?

3

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

3

. If the price elasticity of demand for pineapples is 0.75, then a 4% increase in the price of pineapples will lead to a:

3% decrease in the quantity of pineapples demanded

what happens if price elasticity is greater than one?

Demand is elastic

. If the percentage change in the price of a good is less than the resulting percentage change in the quantity demanded of that good, then the demand for that good is:

Elastic

. If the price elasticity of demand for a good is greater than one, then the demand for that good is:

Elastic

If consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

Elastic

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:

Elastic

The demand for a good is unit elastic with respect to price if the price elasticity of demand is:

Equal to one

When the demand for a good is inelastic, that good is likely to have:

Few close Substitutes

For which of the following products is demand likely to be least elastic with respect to price?

Food: has no close substitute but there are substitutes for the other goods listed

If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be:

Inelastic

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

Inelastic

Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is:

Inelastic

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. They then notice that they are selling approximately 15% fewer sodas. The price elasticity of demand for sodas from the campus vending machines, therefore, is:

Inelastic

The price elasticity of demand is typically expressed as a positive number because

It's convenient to use absolute values

Suppose two demand curves intersect and so have a point in common. At that point, demand shown by the steeper curve will be _______ the flatter curve.

Less elastic than

Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.

Less than

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs.

Lower

Suppose you have one hour to catch a flight to Miami for spring break, and it takes 45 minutes to drive to the airport. Your car is almost out of gas and the price of gas at the closest gas station is higher than at other gas stations that are much farther away. To you, the price elasticity of demand for gas is likely to be ______ than it would be if you had several hours before the flight.

Lower

If the demand for a good is highly elastic, that good is likely to have:

Many close substitutes

Which of the following is likely to have the highest price elasticity of demand?

Nike running shoes- has more substitutes doe a particular brand

If the demand for electricity is inelastic, then if the local utility wants to increase its total revenue, it should _______ its price.

Rise

If cross-price elasticity of demand between two goods is positive, the two goods are

Substitutes

The price elasticity of demand is a measure of:

The change in quantity demanded of a good that results from a change in its price.

Suppose that Chris had been charging $1.00 per pound for potatoes. When Chris lowered the price to $0.90 per pound, his total revenue fell. When Chris raised the price to $1.10, total revenue also fell. Which of the following could explain this?

The price elasticity of demand for potatoes is 1 at a price of $1.00 per pound.

If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is:

Unit Elastic

If the price elasticity of demand for a good equals one, then the demand for that good is:

Unit Elastic

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so?

Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.

If the slope of a demand curve is infinite, then the price elasticity of demand is:

Zero

If the elasticity of demand for the latest American Idol album is 1.4, this means A. few substitutes for the American Idol album exist.

a 5% increase in the price leads to a 7% decrease in quantity demanded.

Satellite TV is a close substitute for cable TV. In the 1990's, small satellite TV units were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to:

become more elastic.

. If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:

compliments

If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would

decrease by 3%.

To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price.

elastic; inelastic

The demand for a good is elastic if the price elasticity of demand is:

greater than 1

Suppose that there is only one small clothing store in the remote village of Green Acres, and until recently the townspeople bought their shirts there. As more people in Green Acres become connected to the Internet, the price elasticity of demand for shirts at the Green Acres store will:

increase because the Internet offers more substitutes.

Suppose you learn that in 1900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food:

is probably lower now than it was in 1900

Demand tends to be ______ in the short run than in the long run

less elastic

The demand for a good is inelastic with respect to price if the price elasticity of demand is:

less than 1

You would expect the price elasticity of demand for transportation generally to be:

less than price elasticity of the demand for bus tickets.

A firm that produces a good with many substitutes will most likely find that:

lowering its price will increase total revenue.

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically:

positive

The percentage change in quantity demanded that results from a 1 percent change in price is known as the:

price elasticity of demand.

The price elasticity of demand for a good measures the responsiveness of:

quantity demanded to a one percent change in price of that good.

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests:

there are few other places to purchase soda on campus