ECON 202 Chapter 6
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand using the midpoint formula?
1.62
Formula for Income Elasticity
% change in Q / % change in Income
Formula for Cross Price Elasticity?
% change in Q of good 1 / % change in P of good 2
Price elasticity of demand midpoint formula
((Q2-Q1)/(Q1+Q2)/2) / ((P2-P1)/(P1+P2)/2)
What items have a cross price elasticity of 0?
Unrelated goods
A perfectly elastic demand curve is looks like
a horizontal demand curve
If price elasticity is -0.30 and income elasticity is 0.09, what happens?
an increase in the price will increase revenue, and it is a normal good.
If at 20 phone covers are sold at $50, but 0 are sold at $60. Based on this, the demand is?
elastic or perfectly elastic
If demand is inelastic, the absolute value of the price elasticity of demand is
less than one
If the Cross-Price elasticity is a relatively large positive number, then it indicates that
that the 2 brands are close substitutes
If at $20, 35 collars are sold, but at $25, 28 are sold. Based on this, the demand is?
unit elastic
The supply curve on which price elasticity changes at every point is....
upward sloping
A perfectly inelastic supply curve looks like
vertical
Which demand curves exhibit a price elasticity of demand that remains constant along the entire curve?
vertical and horizontal demand curves
Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________.
vertical; downward sloping
A unit elastic supply curve looks like
45 degree
Suppose the value of the price elasticity of demand is -3. What does this mean?
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent
Suppose the value of the price elasticity of supply is 4. What does that mean?
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
What items have a negative cross price elasticity?
Complements
How is price elasticity of demand different between the long and short run?
Demand is more elastic in the long run than it is in the short run
How does price elasticity of demand change on the demand curve?
From left to right, elastic, unit elastic, inelastic
Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers?
It is perfectly elastic
Necessity
Normal good w/ quantity demanded that responds less than proportional to a price change (income elasticity positive and <1)
What items have a positive cross price elasticity?
Substitutes
At $35 you sell 40 books, but at $25 you sell 50 books. What is the price elasticity of demand using midpoint formula, and how will revenue change?
The demand is inelastic, and revenue will fall if the price is lowered
If a demand curve has a constant elasticity value of 0, what happens to quantity demanded and total revenue when price increases?
The quantity demanded does not change, but total revenue increases (perfectly inelastic/vertical curve)
Income elasticity measures how a good's quantity demanded responds to ....
a change in buyers' incomes
A demand curve on which elasticity changes at every point looks like
a linear downward sloping demand curve
A perfectly inelastic demand curve looks like
a vertical demand curve
In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ________ and get a ________.
cross-price elasticity; positive number
If raising the price would cause the firm to receive less total revenue, the demand would be......
elastic
A demand curve that is horizontal indicates that the commodity .....
has a large number of substitutes
A perfectly elastic supply curve looks like
horizontal
Midpoint formula for price elasticity of supply
looks just like midpoint formula for supply
Luxury goods
normal good w/ a quantity demanded that responds more proportionally to a price change (income elasticity positive and >1)
The price elasticity of an upward- sloping supply curve is always
positive
If a 35 percent increase in price of golf balls led to a 42 percent decrease in quantity demanded, then the demand for golf balls is?
relatively elastic
How does revenue respond to changing price with unit elastic demand?
revenue does not change when price changes
Along a downward-sloping, linear demand curve, total revenue is greatest
where demand is unit elastic
