micro ch5
cross-price elasticity of demand
measures how responsive the demand of one good is to price change of another- % change in quantity demanded/ % change in price of another good
Taking the absolute value of the cross-price elasticity of demand is incorrect because it would:
remove the ability to tell whether the two products are substitutes or complements
You are given data on four products — toothpaste, shampoo, soap, and laundry detergent. The absolute value of the price elasticity of demand for toothpaste is 4. The absolute value of the price elasticity of demand for shampoo is 0.2. The absolute value of the price elasticity of demand for soap is 0.5. The absolute value of the price elasticity of demand for laundry detergent is 2. Which product has the most inelastic demand?
shampoo
If income rises by 10% and the quantity demanded of an item rises by 20%, the income elasticity of demand for this item is:
2
The price of a dozen eggs rises from $3 to $4.70. In response to this price change, quantity supplied increases from 100,000 dozen eggs to 127,000 dozen eggs. What is the approximate price elasticity of supply for eggs?
0.48
The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____.
0.4; inelastic
If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:
0.5
The price of milk at the local grocery store is cut by 15%, and the quantity of milk demanded increases by 10% in response. What is the absolute value of the price elasticity of demand for milk?
0.67
The price of product A is cut by 30%. As a result, the quantity demanded of product B rises by 40%. The cross-price elasticity of demand between product A and product B is _____, and they are _____.
1.33; complements
The price of chicken breast rises from $3.50 per pound to $4.25 per pound. In response to this price change, the quantity demanded for chicken breast falls by 30%. What is the price elasticity of demand for chicken breast?
1.4
Lyft cuts the price of a ride in New York City by 10%. Thereafter, the quantity of rides demanded rises by 25%. What is the price elasticity of demand for Lyft rides?
2.5
The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs?
2.7
The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.
2; substitues
The cross-price elasticity of demand measures how responsive the:
demand for one good is to a change in the price of another good
When the absolute value of the price elasticity of demand is greater than 1, demand is:
elastic
perfectly elastic
horizontal line
Suppose the percentage change in newspapers demanded for any price change is infinite. The absolute value of the elasticity of demand for newspapers is _____, and demand is _____.
infinity; perfectly elastic
Mary loves avocados and must consume avocados every week, regardless of the price. Which of the following must be true? a. All consumers in the market have a high demand for avocados. b. Mary has an inelastic demand for avocados. c. Mary has an elastic demand for avocados. d. Avocados are in large supply in the market.
mary has an inelastic demand for avocados
price elasticity of demand
measure how responsive buyers are to price change- % change in quantity demanded/% change in price
price elasticity of supply
measures how responsive sellers are to price changes- %change in quantity supplied/ %change in price
Income elasticity of demand
measures how responsive the demand for a good is to income changes- %change in quantity demanded/ %change in income
perfectly inelastic
vertical line
The percent change in insulin demanded for any price change is zero. The demand curve for insulin is _____, and the price elasticity of demand is _____.
vertical; perfectly inelasticity
The price of product A is cut by 50%. As a result, the quantity demanded of product B rises by 50%. The cross-price elasticity of demand between product A and product B is _____, and they are _____.
-1; complement
Suppose the price of gasoline rises. As time passes, people adjust to the higher price by searching for the alternatives. The demand for gasoline becomes:
more elastic
When the absolute value of the price elasticity of demand is infinite, demand is:
perfectly elastic
The price elasticity of demand for a good with a vertical demand curve is:
perfectly inelastic
A measure of how responsive buyers are to price changes is the:
price elasticity of demand
Income elasticity of demand measures how responsive the:
quantity demanded of a good is to changes in income.