Micro - Ch 5 - Price Elasticity of Demand and Supply

As shown in Exhibit 1, assuming good X is a normal good, a decrease in consumer income, other factors held constant, will move the equilibrium from point E to point: a. X. b. Z. c. Y. d. W.

c. Y.

As shown in Exhibit 1, assuming goods X and Y are substitutes, a decrease in the price of Y, other factors held constant, will move the equilibrium from point E to point: a. W. b. X. c. Y. d. Z.

c. Y.

If demand price elasticity measures 2, this implies that consumers would: a. buy twice as much of the product if the price drops 10 percent. b. require a 2 percent drop in price to increase their purchases by 1 percent. c. buy 2 percent more of the product in response to a 1 percent drop in price. d. require at least a $2 increase in price before showing any response to the price increase. e. buy twice as much of the product if the price drops 1 percent.

c. buy 2 percent more of the product in response to a 1 percent drop in price.

If a 10 percent price increase causes the quantity demanded for a good to decrease by 5 percent, demand is elastic. T/F

False

If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price. T/F

False

If demand for a good is price elastic, it must also be income elastic. T/F

False

If the demand curve for a good is elastic, consumers will spend more on that good when its price increases. T/F

False

In response to a price change for good Y, if the cross-elasticity of demand for good Y is positive, good X and good Y are complements. T/F

False

Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it. T/F

False

A horizontal demand curve is perfectly elastic. T/F

True

Applying supply and demand analysis, other factors held constant, the steeper the supply curve (less elastic), the larger the burden of a sales tax that is borne by the sellers. T/F

True

If a 10 percent price increase causes the quantity demanded for a good to decrease by 20 percent, demand is elastic. T/F

True

If a 10 percent price increase causes the quantity demanded for a good to decrease by 10 percent, demand is unitary elastic. T/F

True

If a supply curve has a constant slope throughout its length, it must have a constant price elasticity throughout its length. T/F

True

Suppose an economist found that total revenues increased for the bus system when fares were raised. The conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic. T/F

True

As shown in Exhibit 1, the price elasticity of demand for good X between points E and Z is: a. 3/13 = 0.23. b. 3/3 = 4.33. c. 1/3 = 0.33. d. 1.

a. 3/13 = 0.23.

As shown in Exhibit 1, assuming good X is an inferior good, a decrease in consumer income, other factors held constant, will move the equilibrium from point E to point: a. X. b. W. c. Z. d. Y.

a. X.

The number of computers bought increased by 20 percent when the price of on-line services declined by 10 percent. Assuming other factors are held constant, computers and on-line services are classified as: a. complements. b. unrelated goods. c. substitutes. d. social goods.

a. complements.

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is: a. elastic. b. inelastic. c. perfectly inelastic. d. perfectly elastic.

a. elastic.

If a decrease in the price of football tickets increases the total revenue of the athletic department, this is evidence that demand is: a. price elastic. b. price inelastic. c. unit elastic with respect to price. d. perfectly inelastic.

a. price elastic.

If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by 5 percent, the price elasticity of demand over this range of the demand curve is: a. price elastic. b. price inelastic. c. perfectly inelastic. d. unitary elastic.

a. price elastic.

There is no change in total revenue when the demand curve for a good is: a. unitary elastic. b. perfectly inelastic. c. elastic. d. inelastic. e. perfectly elastic.

a. unitary elastic.

Which of the following is true for a lower price elasticity of demand coefficient? a. The quantity demanded is less responsive. b. Few substitutes exist. c. Many substitutes exist. d. All of the answers above are correct.

b. Few substitutes exist.

The Smith family buys much more macaroni when someone in the family is laid off. This means that the Smiths' ___________ is negative. a. demand curve for macaroni b. income elasticity for macaroni c. Engel's law d. income e. price elasticity of demand for macaroni

b. income elasticity for macaroni

Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is: a. unitary elastic. b. inelastic. c. elastic. d. perfectly inelastic.

b. inelastic.

The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as: a. social goods. b. normal goods. c. Giffen goods. d. inferior goods.

b. normal goods.

Suppose that when price is $10, quantity supplied is 20. When price is $6, quantity supplied is 12. The price elasticity of supply is: a. 0.5. b. 0.8. c. 1.0. d. 1.5. e. 2.0.

c. 1.0.

In Exhibit 1, the price elasticity of supply for good X between points Y and E is: a. 1/5 = 0.20. b. 5/3 = 1.66. c. 3/5 = 0.60. d. 1.

c. 3/5 = 0.60.

In Exhibit 1, the price elasticity of supply for good X between points E and X is: a. 7/5 = 1.40. b. 1/5 = 0.20. c. 5/7 = 0.71. d. 1.

c. 5/7 = 0.71.

If the government wants to raise tax revenue and shift most of the tax burden to the sellers, it would impose a tax on a good with a: a. steep (inelastic) demand curve and steep (inelastic) demand curve. b. steep (inelastic) demand curve and a flat (elastic) supply curve. c. flat (elastic) demand curve and a steep (inelastic) supply curve. d. flat (elastic) demand curve and a flat (elastic) supply curve.

c. flat (elastic) demand curve and a steep (inelastic) supply curve.

The ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in the price of another good or service is called a (an) ___

cross elasticity of demand

As shown in Exhibit 1, the price elasticity of supply for good X between points E and X is: a. 1/5 = 0.20. b. 7/5 = 1.40. c. 1/2 = 0.50. d. 5/7 = 0.71.

d. 5/7 = 0.71.

The cross elasticity of demand between two goods is 2.5. These goods are: a. perfect complements. b. imperfect complements. c. unrelated. d. substitutes. e. inferior.

d. substitutes.

Which of the following statements is true? a. If the income elasticity of demand is less than zero, the good is an inferior good. b. Only if the demand curve is vertical will sellers raise the price by the full amount of a tax. c. Two goods are substitutes if the cross-elasticity of demand coefficient is positive. d. A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent. e. All of the answers above are correct

e. All of the answers above are correct

If the price elasticity of demand for a product measures .45, a. this good has many available substitutes. b. this good must be a nonessential good. c. this good is a high-priced good. d. a decrease in price will increase total revenue. e. this good is demand price inelastic.

e. this good is demand price inelastic.

___ is a more than 1 percent change in quantity demanded in response to a 1 percent change in price.

elastic demand

___ is the ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in income.

income elasticity of demand

___ is a less than 1 percent change in quantity demanded in response to a 1 percent change in price.

inelastic demand

An extreme case in which the demand curve is horizontal and the elasticity coefficient equals infinity is called ___

perfectly elastic demand

An extreme case in which the demand curve is vertical and the elasticity coefficient equals zero is called ___

perfectly inelastic demand

The ratio of the percentage change in quantity demanded to the percentage change in price is called ___

price elasticity of demand

___ is the ratio of the percentage change in the quantity supplied of a product to the percentage change in its price.

price elasticity of supply

The total number of dollars a firm earns from the sale of a good or service, which is equal to its price multiplied by the quantity demanded is called ___

total revenue

The share of a tax ultimately paid by consumers and seller is called ___

tax incidence

___ is a 1 percent change in quantity demanded in response to a 1 percent change in price.

unitary elastic demand