online econ hw ch 5

What is the cross-price elasticity of demand for two goods that are unrelated?

Zero

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.

an increase, positive

At current prices of a highly addictive drug the demand for the drug is highly price:

inelastic

When you compute a price elasticity of demand the answer is always:

negative

at the mid point of a linear demand​ curve, the price elasticity of demand is unit elastic .

of a linear demand​ curve, the price elasticity of demand is inelastic . of a linear demand​ curve, the price elasticity of demand is elastic . Demand is elastic along the upper portion of the linear demand curve. Demand is inelastic along the lower portion of the linear demand curve.

If the supply of Good B is perfectly elastic and price falls the quantity supplied will:

fall to zero

A perfectly inelastic supply occurs when the product supplied is

fixed in quantity.

The price elasticity of supply always has a:

positive value

The more substitutes that exist for a particular product, the __________ the price elasticity of demand.

greater

Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.

$3.62

When the price of CDs increased from ​$10.00 to ​$11.00​, the quantity demanded decreased from 240 to 200 units. Using the​ initial-value approach, the​ (absolute value) price elasticity of demand is

(Qnew-Qinitial/Qinitial) /( Pnew-Pinitial /Pinitial) <Take abs value elastic

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?

10%, rise

Using the initial value formula, the value of price elasticity of supply between points s and t equals:

2.0

Income and Starbucks Coffee Shops. Starbucks just hired you to determine whether your city could support a new Starbucks coffee shop. There are currently two Starbucks coffee shops in the​ city, and each has just enough customers to survive. The average household income in the city is expected to increase by 20 percent per year for the next 20 years. Suppose the income elasticity for Starbucks coffee products is 1.25 and the population is assumed to be constant.

25% 2 years

College Enrollment and Apartment Prices. Consider a college town where the initial equilibrium price of apartments is​ $400 and the initial equilibrium quantity is​ 1,000 apartments. The price elasticity of demand for apartments is 1.0 and the elasticity of supply is 0.50. Suppose the demand for apartments increases by​ 15%.

An increase in demand increases​ price; a decrease in demand decreases price.

Use the Correct Elasticity. Your company currently sells 50 units of salt per year and has decided to increase its price from​ $1.00 to​ $1.20 per unit. In a​ meeting, one person suggests that the company leave price unchanged because​ "the price elasticity of demand for salt is 0.10. ​ Therefore, if we increase the​ price, the quantity demanded will decrease by 2​ percent." Why is this person incorrect about raising​ price?

Since demand for salt is price​ inelastic, total revenue will increase as price increases.

If the cross-price elasticity of demand between two products is -3.0, then the two products are:

complements

Personal computers and computer display monitors are:

complements

the price elasticity of demand for cigarettes among teenagers is 1.3. If the price of cigarettes increases by​ 20%, the quantity of cigarettes demanded by teenagers will

decrease by​ 26%.

Projecting Transit Ridership. As a transit​ planner, your job is to predict ridership and total fare revenue. Suppose the​ short-run elasticity of demand for commuter rail​ (over a​ one-month period) is​ 0.60, and the​ long-run elasticity​ (over a​ two-year period) is 1.60. The current ridership is​ 100,000 people per day. Suppose the transit authority decides to increase its fares from​ $2.00 to​ $2.20.

decrease by​ 6%. decrease by​ 16%. increase decrease

The​ short-run elasticity of supply is smaller than the​ long-run elasticity of supply. This is because the principle of​ _____ is applicable in the short run.

diminishing returns

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.

elastic

MADD Beer Tax. The organization Mothers Against Drunk Driving​ (MADD) has a target of reducing the number of highway deaths among young adults by​ 39%. Assume that the number of highway deaths for young adults is proportional to their beer consumption. The price elasticity of demand for beer among young adults is about 1.30. In order to meet the MADD​ target, the price of beer must

increase by​ 30%.

If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.

increase, 8.0

A perfectly inelastic supply curve:

indicates the quantity supplied does not respond to a change in price

Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.

price elasticity of demand

If demand is inelastic​, the percentage change in

quantity demanded is less than the percentage change in price.

Short Run vs. Long Run in the Pear Market. Suppose in the production of​ pears, the​ short-run supply elasticity is 0.25​, while the​ long-run supply elasticity is 3.50. In the short​ run, a 20.00​% increase in the price of pears will cause the quantity supplied of pears to

rise by 5.00 percent. rise by 70.00 percent.

The conditions under which an increase in demand will cause a relatively small increase in price​ are:

small increase in​ demand; highly elastic​ demand; highly elastic supply.

If prices rise the quantity supplied will be greater:

the longer the time that elapses

In the case of the broken gasoline​ pipeline, the decrease in supply and the resulting increase in price caused a decrease in

the quantity demanded and an increase in the quantity supplied.

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:

-1.25

If a 30% increase in price decreases the quantity demanded by 42%, the price elasticity of demand is

42%/ 30% = 1.4

If the income elasticity of SUVs is greater than 1, what is the good considered?

A luxury

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?

An inferior good

Which of the following goods is probably the most highly income elastic?

Private education

Suppose at the current​ price, the price elasticity of demand for a campus film series is 1.5. If administrators cut the​ price, total revenue will increase .

Suppose at the current​ price, the price elasticity of demand for a campus film series is 2. If administrators raise the​ price, total revenue will decrease .

Assume that the elasticity of demand for chewing tobacco is 0.70 and the elasticity of supply is 2.30. Suppose an​ anti-chewing tobacco campaign decreases the demand for chewing tobacco by 16​%. The equilibrium price of chewing tobacco will decrease by 5.3 percent ​(enter your response rounded to two decimal ​places).

Suppose the elasticity of demand for motel rooms is 1.00 and the elasticity of supply is 0.25. If the demand for motel rooms increases by 10 ​percent, the equilibrium price of motel rooms will increase by 8 percent ​(enter your response rounded to one decimal ​place).

If we are on the lower portion of a linear demand​ curve, a decrease in price will decrease total revenue.

Suppose we are on the lower portion of a linear demand curve. If the price increases by 1010 ​percent, the quantity demanded will decrease by less than 10 percent. In this​ case, total revenue will increase .

Which of these demand curves shows a perfectly inelastic demand?

The demand curve on the left

Price Hikes and Cable TV Revenue. Four years​ ago, the cable television company in your area increased its price by 27 percent. As a​ result, its total revenue increased. Last​ year, a new company started providing television service using satellite dishes. This year the cable company increased its price by 27 ​percent, but its total revenue fell. This is likely the result of which of the​ following?

all of the above

If demand is​ elastic, a decrease in price increases total​ revenue; if demand is​ inelastic, an increase in price increases total revenue.

if demand is​ elastic, a decrease in price increases total​ revenue; if demand is​ inelastic, a decrease in price decreases total revenue.

If the price elasticity of demand is 0.33 then demand is __________ over that price range.

inelastic

​Win-Win. According to an economic​ consultant, "For your​ firm, an increase in price is a​ win-win situation. Your total revenue will increase and your total cost will decrease.​ Therefore, you'll earn more profit​ (equal to Total Revenueminus−Total ​Cost)."

inelastic The demand curve is downward sloping so a price increase will lower​ output, thus lowering total cost.

Advice to Firm. Suppose a firm that produces clown wigs has a linear demand for its​ product, with a vertical intercept of​ $6. If the firm currently charges a price of​ $1, you advise that since the current price is in the

inelastic range of the demand​ line, raising the price into the elastic range will increase revenue.

The​ short-run elasticity of supply of coffee is

less than the​ long-run elasticity because in the​ short-run, the number of bushes is fixed.

Economists avoid confusion over units in the computation of elasticity by using:

percentage changes