Review questions micro
If a price change has no effect on total revenue, this indicates that the coefficient of elasticity is
1
A decrease in demand in the momentary period will
Decrease price with quantity remaining unchanged
Total revenue will not keep on increasing if a firm raises its price because
Demand will become elastic
Other things equal, if the price elasticity of demand is one in the short run, in the long run it will be
Greater than one
A perfectly elastic demand curve is
Horizontal
The elasticity of supply measures
How responsive suppliers are to price changes
Supply is the most elastic
In the long run
In the market period the increase in demand will
Increase equilibrium price, but not equilibrium quantity
In the momentary period, an increase in demand will
Increase price, but not quantity
A momentary supply curve is:
Inelastic since output is fixed
A perfectly inelastic demand curve
Is vertical
Increases and decreases in income have the strongest effect on
Luxury goods
Supply curves, S1, S2, and S3 apply to the
Market period, short run, and long run respectively
As compared to supply in the market period, a short-run supply curve is likely to be
More elastic
If there are many substitutes for a product, demand will be
More elastic
We can say that supply in the short run is
More elastic than in the momentary period
Other things the same, the demand for a good will tend to be
More elastic, the larger the portion of consumers' income spent on the good
When a consumer spends a small portion of his budget on a good, the demand will generally be
More inelastic
Price elasticity of demand for a commodity tends to be greater
The more substitutes there are for it
Elasticity of supply is a measure of the extent to which the quantity of a good supplied changes in response to a change in:
The price of the good itself
The cross price elasticity of demand measures the responsiveness of
The quantity of Y to changes in the price of X
The most important determinant of the elasticity of supply is
The time period firms have to adjust to the new price
A firm increases price and its total revenues increase. Hence, we know that
its demand is price inelastic
What does cross-price elasticity measures?
The identification of complements and substitutes
The main determinant of elasticity of supply is the
Amount of time the producer has to adjust inputs in response to a price change
If the income elasticity for a product is negative it suggests that the product is
An inferior good
The most important determinant of demand elasticity is the:
Availability of substitutes
A vertical demand curve implies that
Consumers are unresponsive to changes in price
A vertical demand implies that
Consumers are unresponsive to changes in price
The income elasticity of demand is the percentage change in
Quantity demanded divided by the percentage change in income
If the demand for a product is elastic, then total revenue will
Rise as price falls
A negative cross elasticity of demand indicates the goods are
Substitutes
With respect to the elasticity of supply in the momentary and long run we can say
Supply is more elastic in the long run than in the momentary period
