Econ chapter 4

if cross elasticity is zero

then X and Y are unrelated or independent products

explain what a perfectly inelastic and elastic graph would look like

-If demand is vertical, demand is perfectly inelastic. Every change in price brings no change in quantity. -If demand is horizontal, then demand is perfectly elastic. A small change in price brings an infinite change in quantity.

cross elasticity of demand

The measure of responsiveness of the demand for a good towards the change in the price of a related good

The price elasticity of demand coefficient measures:

buyer responsiveness to price changes.

inelastic

used to describe the situation in which the quantity of a good or service is unaffected when the price of that good or service changes.

Supply curves tend to be:

more elastic in the long run because there is time for firms to enter or leave the industry.

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:

more inelastic the demand for the product

The price elasticity of demand is generally:

negative, but the minus sign is ignored.

The basic formula for the price elasticity of demand coefficient is:

percentage change in quantity demanded/percentage change in price.

A firm can sell as much as it wants at a constant price. Demand is thus:

perfectly elastic.

In which of the following instances will total revenue decline?

price rises and demand is elastic

In which of the following cases will total revenue increase?

price rises and demand is inelastic

elastic

refers to the degree of responsiveness in supply or demand in relation to changes in price. If a curve is more elastic, then small changes in price will cause large changes in quantity consumed

The demand for a luxury good whose purchase would exhaust a big portion of one's income is:

relatively price elastic.

if cross elasticity is negative:

the X and Y are complements

The more time consumers have to adjust to a change in price:

the greater will be the price elasticity of demand.

The narrower the definition of a product:

the larger the number of substitutes and the greater the price elasticity of demand.

if cross elasticity is positive:

then X and Y are substitutes

If a firm's demand for labor is elastic, a union-negotiated wage increase will:

cause the firm's total payroll to decline

what is the midpoint formula

change in quantity / (sum of qualities/ 2) divided by change in price/ (sum of prices/2)

The demand for a product is inelastic with respect to price if:

consumers are largely unresponsive to a per unit price change.

If price and total revenue are inversely related, then demand is

elastic

The price elasticity of demand of a straight-line demand curve is:

elastic in high-price ranges and inelastic in low-price ranges

Price elasticity of demand is generally:

greater in the long run than in the short run

If price and total revenue are directly related, demand is

inelastic

price elasticity of supply

is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.

income elasticity

measures the responsiveness of the quantity demanded for a good or service to a change in the income of the people demanding the good

those industries that are income elastic will be:

more dependent on the business cycle

what are the four major determinants of price elasticity of demand?

-substitues for the product: better substitutes, the more elastic -proportion of expenditures on specified good relative to income: the larger the expenditure on the specific good relative to ones budget, the more elastic -product is a luxury or a necessity: less necessary the item the more elastic -longer the time period involved in making the purchase, the more elastic

Why would a manager of a firm be interested in knowing the value of the price elasticity of demand for its firm s product. How could he/she use this information to make better decisions that benefit the firm?

If a manager knows the elasticity of the demand for his firm's product, he will be able to know whether to raise or lower prices. This information could help make better decisions by help making sure they are selling the product at the right amount. If they weren't they could be losing money by not know the elasticity of demand.

Canaanville Terrace Water Co. pumps Magic Spring Sparking Water from an underground spring. This water is packaged in 1.5 liter bottles for sale to local residents. At a price of $1.50 per bottle, 1000 bottles can be sold per day. When the price is increased to $2.00 per bottle, only 900 bottles can be sold per day.Using the Midpoint formula, calculate the price elasticity of demand.

Price elasticity of demand= .38

What are the major determinants of price elasticity of demand? Use those determinants and your own reasoning in judging whether Demand for each of the following products is probably elastic or inelastic: (a) bottled water; (b) toothpaste; (c) Crest toothpaste; (d) ketchup; (e) diamond bracelets; (f) Microsoft Windows operating system.

The major determinants of price elasticity of demand are substitutability, proportion of income, luxury versus necessity, and time. a) Bottled water is probably elastic because there are many different substitutes for it like tap water, water fountains, and other drinks in bottles. b) Tooth paste is probably inelastic because there not many substitutes and it is a neccessity. c) Crest toothpaste is probably elastic because there are many other brands you can substitute for this brand. d) Ketchup is likely inelastic because there are not many substitutes for ketchup and it makes up a small percentage of income. e) Diamond bracelets are probably elastic because it is a luxury good and may make up a larger fraction of income. f) Microsoft windows operating system is probably inelastic because there are not many subsititutes and it has become a neccessity for workplaces.

unitary price elasticities of demand

When the price elasticity of demand for a good is unit (or unitary) elastic (Ed = -1), the percentage change in quantity demanded is equal to that in price, so a change in price will not affect total revenue.

A supply curve that is a vertical straight line indicates that:

a change in price will have no effect on the quantity supplied

a negative income elasticity indicates:

a inferior good

a positive income elasticity indicates:

a normal or superior good

The main determinant of elasticity of supply is the:

amount of time the producer has to adjust inputs in response to a price change