Microeconomics Ch. 6
As price falls from P*a to P*b, the quantity demanded increases the most along the D1; therefore
D1 is more elastic than D2 or D3
Which of the following statement s about the price elasticity of demand is correct?
Demand is more elastic in the long run than it is in the short run
A demand curve that is horizontal indicates that the commodity
Has a large number of substitutes
If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is
Vertical
Studies show that the income elasticity of demand for wine is approximately five. What does this mean?
A 1 percent increase in income leads to a 5 percent increase in wine consumption
Of the following, which is the best example of a good with a perfectly inelastic demand?
A diabetic's demand for insulin
Which of the following items is likely to have the highest income elasticity of demand?
A vacation home in the Swiss Alps
With the increased usage of cell phone services, what happened to the price elasticity of demand for land-line telephone services?
It has become more price elastic
Income elasticity measures how a good's quantity demanded responds to
Change in buyers' incomes
Which of the following is NOT a determinant of a good's price elasticity of demand?
The slope of the demand curve
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
0.5
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
1.62
The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?
2.5 percent
Using the midpoint formula, calculate the absolute value of the price elasticity of demand between "e" and "f"... (^P=16%; "e"=60; "f"=100)
3.125
The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:
8 units of Utility
Which of the following goods would have the most inelastic demand?
Bread
The price elasticity of demand coefficient measures
Buyer responsiveness to price change
Which of the following products comes closest to having a perfectly inelastic demand?
Cholesterol medication in general
The demand for a product is inelastic with respect to price if
Consumers are largely unresponsive to per unit price change
A perfectly elastic demand curve is
Horizontal
According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton Based on the information above, the demand for hotel rooms is
Inelastic
When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is
Inelastic
If demand is perfectly inelastic, the absolute value of the price elasticity coefficient is
Infinity
The larger the share of a good in a consumer's budget, holding everything else constant, the
More price elastic is a consumer's demand
If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is
One that sells a luxury good
Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee, and Peet's Coffee.
Peet's Coffee, coffee, hot beverage
Cross-price elasticity of demand is calculated as the
Percentage change in quantity demanded of one good divided by percentage change in price of a different good
At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for tamales is
Perfectly inelastic
We would expect the cross elasticity of demand between Pepsi and Coke to be:
Positive, indicating substitute goods
Total revenue equals
Price per unit times quantity sold
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
Relatively elastic
When there few close substitutes available for a good, demand tends to be
Relatively inelastic
If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would
Remain constant
The slope of a demand curve is NOT used to measure the price elasticity of demand because
The measurement of slope is sensitive to the units chosen for price and quantity
When demand is unit elastic, a change in price causes total revenue to stay the same because
The percentage change in quantity demanded exactly offsets the percentage change in price
If the demand for steak is unit elastic, then
The percentage change in quantity demanded is equal to the percentage change in price
If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is
Unit elastic
perfect inelastic demand is represented by a demand curve which is __________, and relatively inelastic demand is represented by a demand curve which is __________.
Vertical; downward sloping
If the slope of a demand curve is equal to -0.1 then
We don't know whether the demand is elastic or inelastic
If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded
Will decrease by 45 percent