Eco 102-51 Macroeconomics Chapter 5

If the supply curve for a product is horizontal, then the elasticity of supply is:

equal to infinity.

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:

fall and the equilibrium quantity to stay the same.

Refer to Figure 5-1. With reference to Graph A, at a price of $10, total revenue equals:

$400.

Refer to Figure 5-1. With reference to Graph A, at a price of $5, total revenue equals:

$500.

A price cut will increase the total revenue a firm receives if the demand for its product is:

. elastic.

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?

1.0

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

4.25

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:

5 units.

When demand is inelastic:

consumers are not very responsive to changes in price.

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

cross-price elasticity of demand for iced tea is 2.

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:

cross-price elasticity of demand for soda is -3.

Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.

elastic

Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

If the supply curve for a product is vertical, then the elasticity of supply is:

equal to zero

The longer the time period considered, the more the elasticity of supply tends to:

increase

If the demand curve is perfectly elastic, then an increase in supply will:

increase the quantity exchanged but result in no change in the price.

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

increasing the price of game tickets because demand is inelastic.

Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price.

inelastic

When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________.

inelastic

Refer to Figure 5-1. Graph B represents a demand curve that is relatively __________. Total revenue __________ as the price decreases from $10 to $5.

inelastic; decreases

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.

inelastic; elastic

A demand or supply curve with ______________ would be horizontal in appearance.

infinite elasticity

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume:

macaroni is an inferior good and price elasticity of supply is infinite.

The elasticity of supply is defined as the ________ change in quantity supplied divided by the _______ change in price.

percentage;percentage

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________.

price

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:

rise and the equilibrium quantity to stay the same.

If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to:

stay the same and the equilibrium quantity to fall.

Price elasticity of demand is defined as:

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

If cola and iced tea are good substitutes for consumers, then it is likely that:

their cross price elasticities are greater than zero.

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:

total revenue will decrease.

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price.

unit elastic