Macroeconomics, Ch. 5

Consider the graph below. At a price of $5, total revenue equals:

$200

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

Elastic

Price elasticity of demand is generally

Greater in the long run than in the short run

Demand is said to be ___ when the quantity demanded is not responsive to changes in price

Inelastic

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of peanuts The coefficient of income elasticity of demand is

Positive, and therefore peanuts are a normal good

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

Price

The price elasticity of demand measures the:

Responsiveness of quantity demanded to a change in price

The elasticity of demand for a product is likely to be greater,

The greater the amount of time over which buyers adjust to a price change

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

The greater will be the price elasticity of demand

Price elasticity of demand is defined as:

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

If two products are considered substitute products for consumers, then it is likely that:

Their cross price elasticities are greater than zero (positive)

If two products are considered complement products for consumers, then it is likely that:

Their cross price elasticity es are less than zero (negative)

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 2.0

Supply is said to be ____________ when the quantity supplied is very responsive to changes in price.

elastic

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.

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