Micro Part 2
$100.
(Figure 20.1) Total revenue is maximized at the unit price of
Suppose a university raises its tuition by 6 percent, and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is
0.5.
Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of a price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to
1.29.
If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is
2.
(Figure 20.1) In the $160 to $180 price range, the absolute value of the price elasticity of demand is closest to
5.7.
Suppose consumers buy 50 million packs of cigarettes per month at a price of $6 per pack. If a $2 tax is added to that price, Instructions: Enter your responses as a percentage rounded to one decimal place. Remember to use the average in the denominator when completing questions related to elasticity. a. By what percentage does the price change?
Price before tax =$6 Price after tax =$6+$2⇒$8 Step 2 −:Solution:− Change in the price =(Change in price /Average price)×100 =(8−6)6+82×100% =27×100% =28.57% Explanation: Change in the price =(Change in price/Average)×100 (b) Incomplete information. Answer Hence, the final answer is: Percentage change in the price is 28.57 Incomplete information.
A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following?
The demand for salt is inelastic.
Suppose income falls 5 percent in a year, and as a result, housing construction falls from 10 million to 5 million units annually. Based on this information, housing starts are
a normal good.
If the price elasticity of demand is equal to 2, the good has _____ demand.
an elastic
If demand is elastic, then
an increase in price will reduce total revenue.
Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will
decrease by 14.3 percent.
A price decrease will cause total revenue to fall if the
demand is inelastic.
When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus,
demand is inelastic.
The demand will be _______________ if the consumer has _________ substitute goods to choose from.
elastic; more
If the cross-price elasticity of demand for SUVs with respect to the price of gasoline is -0.10 and gasoline prices rise by 18 percent, then SUV sales should, ceteris paribus,
fall by 1.8 percent.
Suppose the income elasticity of demand for jet skis is 3.5. If the level of income decreases by 1 percent, the number of jet skis sold will, ceteris paribus,
fall by 3.5 percent.
Ceteris paribus, if income increases and as a result, the demand for good X increases and the demand for good Y falls,
good X is a normal good and good Y is an inferior good
Price elasticity looks at
how much the quantity demanded or quantity supplied changes after as a result of a change in price.
Price elasticity of demand refers to
how sensitive buyers are to a change in price.
Demand is more price-elastic
in the long run.
Assume the price elasticity of demand for MC Pretzel Co. pretzels is 0.8. If the company increases the price of each bag of pretzels, total revenue will
increase because the percentage increase in price is greater than the percentage change in quantity demanded.
If the elasticity of demand for cigarettes is 0.4, a seller should
increase price to increase total revenue.
Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result, the cross-price elasticity of apples and oranges will become
less positive (move closer to zero).
Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to
lower his price to increase revenue.
Ceteris paribus, the longer the time period, the
more elastic the demand for the good.
The local baseball team owner hires you to help maximize the team's profits. Assume your task is to maximize revenues from ticket sales. Your advice to the owner should be to
move the price toward unitary elasticity.Correct
If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,
new cars are a normal good and the income elasticity is +2.0.
(Figure 20.2) Comparing the price elasticity of demand at points A and C, we can say that
point A has a greater price elasticity of demand in absolute value.
The total revenue effect of a movement along a demand curve can best be predicted using the
price elasticity of demand.
When demand is price-inelastic, ceteris paribus, an increase in
price leads to greater total revenue.
Total revenue is
quantity sold times price.
The demand for normal goods
rises when incomes rise.
Maximum total revenue occurs when
the absolute value of the price elasticity of demand is 1.0.
To find the average percentage change in quantity demanded,
the change in quantity demanded is divided by the average quantity.
If two goods are complementary goods, then
the cross-price elasticity sign will be negative.
If demand is very inelastic,
the demand curve will be very steep.
Total revenue is equal to
the income from sales.
If two goods are substitute goods,
the percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.
The formula for cross-price elasticity is
the percentage change in the quantity demanded for one good divided by the percentage change in the price of another good.
If the elasticity of demand is 3, and the price rises by 15 percent, then
the quantity demanded will fall by 45 percent.
A price change will have no effect on total revenue if the demand is
unitary elastic.