Micro Econ - Elasticity

Negative cross price elasticity of demand between two goods indicates that the two goods are

NOT inferior goods

A 10% decrease in the price of potato chips leads to a 30% increase in the quantity of soda demanded. It appears that

cross-price elasticity of demand for soda is -3

Suppose there is a major technological advance in the production of a good that causes production costs to fall. If demand for the product is relatively inelastic, what will happen in the market?

Price will relatively decrease greater than the increase in quantity

Using the midpoints method, calculate the price elasticity of demand of Good X using the following information: When the price of good X is $50, the quantity demanded of good X is 400 units. When the price of good X rises to $60, the quantity demanded of good X falls to 300 units.

The price elasticity of demand for good X = 1.57

Using the midpoints method, calculate the price elasticity of demand of Good Z using the following information: When the price of good Z is $10, the quantity demanded of good Z is 85 units. When the price of good Z rises to $15, the quantity demanded of good Z falls to 60 units.

The price of elasticity of demand for good Z = .52

The size of the change in the quantity demanded of a good or service due to change in its price is measured by the elasticity of demand. When the percentage change in the quantity demanded for a good or service is less than the percentage change in price, the demand for that good or service is ________ and the price elasticity coefficient is ________.

inelastic, less than 1

When income increases and demand for a good falls, the good is considered a

inferior good

Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company's product at the current price is 1.4, what would you advise the company to do?

lower the price

When income increases and the demand for a good increases, the good is considered a

normal good

The elasticity of supply is defined as the ________ change in quantity supplied divided by the ________ change in price.

percentage: percentage

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

price

Elastic supply occurs if the change in quantity supplied is ________ to a change in price.

relatively responsive

If consumers find cola and iced tea good substitutes, then it is likely that

the goods' cross price elasticities are greater than zero.

The elasticity of supply is defined as the

the percentage change in quantity supplied divided by the percentage change in price.

The price of elasticity of demand measures the

the responsiveness of the quantity demanded to changes in price

You are the manager of a restaurant and would like to increase revenue. The host staff suggests that you should increase the price of drinks and food, but the servers suggest decreasing the price of drinks and food. You are unsure if you should increase or decrease price, but you know that

the servers thinks demand for drinks and food is elastic

If the supply curve for a product is horizontal, then the elasticity of supply is

equal to infinity

Suppose the price of apples increase by 20%, resulting in consumers to purchase 15% more pears. Given this information, it appears that

cross-price elasticity of pears is 0.75

Given that total revenue = price x quantity, what will happen to total revenue if price increases when demand is elastic?

decrease

In a market with relatively inelastic demand, if the supply curve shifts due to a fall in production costs, the equilibrium price will ________ by ________ than equilibrium quantity.

decrease; less

Complete the following sentence. Given that total revenue = price x quantity, a reduction in price will lead to an increase in total revenue when demand is

elastic

The size of the change in the quantity demanded of a good or service due to change in its price is measured by the elasticity of demand. When the percentage change in the quantity demanded for a good or service is more than the percentage change in price, the demand for that good or service is ________ and the price elasticity coefficient is ________.

elastic, greater than 1

Teenage workers are assumed to have ________ labor supply, therefore a 5% increase in wage would result in ________ percentage change in quantity of labor supplied.

elastic; greater

Which of the following concepts can be used to understand the effects of price changes on quantity demanded and quantity supplied, as well as the effect of raising taxes on revenue from the tax?

elasticity

A perfectly elastic supply curve is

horizontal

Elasticity is relevant when trying to understand

how a change in price affects quantity supplied, how a change in price affects quantity demanded, and how raising a tax on a good affects the revenue from the tax.

Elasticity refers to?

how responsive one variable is to changes in another

Elasticity measures the behavioral response of economic agents in a given situation. Which question is likely to be answered using elasticity?

If a restaurant puts their pizza on sale, will the additional number of pizzas sold offset the discount on each item? Will their sales revenues for pizza go up or down?

Which of these questions is the best example of elasticity?

How much will a change in price or quantity impact consumer and producer behavior?

When a 5% increase in income causes a 3% drop in quantity demanded of a good

The income elasticity is .6 and the good is an inferior good.

You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand, several years after the price change, will be about −1.5. Select the statement that best describes the results of raising the fare in the long run.

Total revenue falls, since demand changes and becomes price elastic

You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand for the first few months after a price change is about −0.3. Select the statement that best describes the results of raising the fare in the short run.

Total revenue rises immediately after the fare increase, since demand over the immediate period is price inelastic.

If wage increases by 10%, a(n) ________ worker is likely to supply 7% more labor because elasticity of labor supply is assumed to be ________.

adult; inelastic