exam 2 econ

Elastic vs. Inelastic Demand

inelastic: a given change in price causes a small change in the quantity demanded elastic: a given change in price causes a large change in the quantity demanded

normal good

a good for which the demand increases as income rises and decreases as income falls

inferior good

a good for which, other things equal, an increase in income leads to a decrease in demand

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 percent increase in the price of beef, holding everything else constant, will cause the quantity of beef demanded to a.decrease by 12 percent. b.decrease by 26 percent. c.decrease by 32 percent.

a. decrease by 12 percent

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is a.perfectly inelastic. b.unit elastic. c.inelastic.

a. perfectly inelastic

If the demand for a product is perfectly inelastic, a decrease in the price of the product a.will decrease total revenue. b.will increase total revenue. c.will not change total revenue.

a. will decrease total revenue

According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton. Based on the information above, the demand for hotel rooms is a.elastic. b. inelastic. c.perfectly elastic.

b. inelastic

The cross-price elasticity between Gillette razors and a related good is -3.4. What happens to the demand for the related good if the price of Gillette razors falls by 10 percent? a.The quantity demanded of the related good falls by 3.4 percent. b.The quantity demanded of the related good rises by 34 percent. c.The quantity demanded of the related good falls by 34 percent.

b. the quantity demanded of the related good rises by 34 percent

Ch 6) Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________. a. horizontal; downward sloping b.vertical; downward sloping c.downward sloping; vertical

b: vertical; downward sloping

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and the quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? a.0.11 b.0.37 c.2.69

c. 2.69

ch 6) Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant? a.Demand is likely to be relatively elastic. b.Demand is likely to be perfectly elastic. C.Demand is likely to be relatively inelastic.

c. demand is likely to be relatively inelastic

In 2016, Philadelphia imposed a tax of 1.5 cents per ounce on sweetened beverages, and PepsiCo indicated that its sales in Philadelphia fell by 40 percent after the tax took effect. If the price of PepsiCo's sweetened beverages in Philadelphia increased by 32 percent following the implementation of the tax, then demand for sweetened beverages in Philadelphia would be a.unit elastic. b.perfectly inelastic. c.elastic

c. elastic

When demand is elastic, a fall in price causes totals revenue to rise because a.the percentage increase in quantity demanded is less than the percentage fall in price. b.when price falls, the quantity sold increases so total revenue automatically rises. c.the increase in quantity sold is large enough to offset the lower price.

c. the increase in quantity sold is large enough to offset the lower price

perfectly inelastic demand

demand in which quantity demanded does not respond at all to a change in price

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars. True False

false

perfectly elastic demand

the case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity