Micro econ exam II
income elasticity of demand equation
% change in quantity demanded ------------------------------------ % change in income
price elasticity of demand equation (midpoint method)
% change in quantity demanded Qd2-Qd1/ . average Qd ------------------------------------- = ----------------- % change in price P2-P1/ average P
cross price elasticity of demand equation:
% change in quantity of A demanded ----------------------------------------- % change in price of B
price elasticity of supply equation
% change in quantity supplied ---------------------------------- % change in price
Price Elasticity of Demand
A measure of how much the quantity demanded of a good responds to a change in the price of that good
Price Effect:
After a price increase, each unit sold sells at a higher price, which tends to raise revenue.
Quantity Effect:
After a price increase, fewer units are sold, which tends to lower revenue.
What is E when inelastic demand is perfect? and what does the demand curve look like?
E=0 vertical I I
What is E when elastic demand is perfect? and what does the demand curve look like?
E=infinity horizontal -----
E<1 is elastic (T/F)
F
The price elasticity of demand will tend to be _________ if there are close substitutes, such as Pepsi and Coke
High
If the demand for golf is price inelastic and your local public golf course increases the green fees for using the course, you would expect: a.) A decrease in total revenue received by the course b.) An increase in total revenue received by the course c.) An increase in the amount of golf played on the course d.) no change in the amount of golf played on the course
b
What does E mean?
Price elasticity of demand
total revenue equation:
Price x Quantity
If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when your income increases from $19,000 to $21,000 then for you, shoes are: a.) Normal goods b.) Inferior goods c.) Substitute goods d.) Complementary goods
b
E<1 is inelastic (T/F)
T
The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5 percent in a period, how will that affect demand for eggs in that period, all other things unchanged: a.) Demand will increase by more than 5.7 percent b.) Demand will increase by about 2.9 percent c.) Demand will decrease by more than 5.7 percent d.) Demand will decrease.
b
A rancher in Oklahoma decides to raise the price of her beef by 19% over what the prevailing market price equals. If the demand for beef is perfectly elastic, this rancher's quantity demanded will: a.) Fall to zero b.) Not change c.) Fall slightly d.) Increase slightly
a
If the quantity supplied responds substantially to a relatively small change in price, supply would be: a.) Price elastic b.) Price inelastic c.) Negatively sloped d.) Insensitive to changes in price
a
The cross-price elasticity of demand of complementary goods is: a.) Less than 0 b.) Equal to 0 c.) Greater than 0 d.) Between 0 and 1
a
The price elasticity of a good will tend to be greater: a.) The longer the relevant time period b.) The fewer the number of substitute goods available c.) If it's a staple or necessity with few substitutes d.) If all of the above exist
a
Each month Jacquelyn spends exactly $50 on ice cream regardless of the price. Jacquelyn's price elasticity of demand for ice cream is: a.) zero b.) one c.) Greater than one d.) Less than one
b
If the price of a good is increased by 15 percent and the quantity demanded changes by 20 percent, then the price elasticity of demand is equal to: a.) 0.75 b.) Approximately 0.33 c.) Approximately 1.33 d.) 1
c
If the price of chocolate-covered peanuts decreases from $1.05 to $0.95 and the quantity demanded increases from 180 bags to 220 bags, this indicates that, if other things are unchanged, the price elasticity of demand using the midpoint method is: a.) 0.5 b.) 1 c.) 2 d.) Great than 2 (absolute value)
c
is E=1.33 elastic or inelastic?
elastic
is the following unit elastic, elastic, or inelastic? increase in price = decrease in TR decrease in price = increase in TR
elastic
The price elasticity of demand will tend to be _________ if the good is a luxury
high
The long-run price elasticity of demand is often ___________(higher/lower) than the short-run elasticity
higher
is E=.4 elastic or inelastic?
inelastic
is the following unit elastic, elastic, or inelastic? increase in price = increase in TR decrease in price = decrease in TR
inelastic
The price elasticity demand will tend to be _________ if the good is a necessity
low
When the cross-price elasticity is ________(positive/negative), the two goods are complements
negative
Demand is _______________ when any price increase will cause the quantity demanded drop to zero.
perfectly elastic
Demand is ________________ when the quantity demanded does not respond at all to changes in the price.
perfectly inelastic
When the cross-price elasticity is _________(positive/negative), the two goods are substitutes
positive
profit equation
total revenue - total cost
if E=1 what is it called?
unit elastic
is the following unit elastic, elastic, or inelastic? increase in price = no change in TR decrease in price = no change in TR
unit elastic