Chapter 5: Elasticity

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A 10% decrease in the price of potato chips leads to a 30% increase in the quantity of soda demanded. It appears that:

cross-price elasticity of demand for soda is -3

A price cut will increase the total revenue a firm receives if the demand for its product is

elastic

Demand is said to be ... when the quantity demanded is very responsive to changes in price.

elastic

Supply is said to be ____________ when the quantity supplied is very responsive to changes in price.

elastic

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as

elastic

Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

If the supply curve for a product is horizontal, then the elasticity of supply is:

equal to infinity

If the supply curve for a product is vertical, then the elasticity of supply is:

equal to zero

A perfectly elastic supply curve is:

horizontal

If the demand curve is perfectly elastic, then an increase in supply will:

increase the quantity exchanged but result in no change in the price.

The price inelasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

increasing the price of game tickets because demand is inelastic.

Demand is said to be ... when the quantity demanded is not very responsive to changes in price.

inelastic

When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that close to vertical, and then to refer to that curve as

inelastic

The elasticity of supply is defined as the ... change in quantity supplied divided by the ... change in price.

percentage; percentage

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in

price

The price inelasticity of demand measures the:

responsiveness of quantity demanded to a change in price

A 25% decrease in the price of breakfast cereal leads to a 20% increase in the quantity of cereal demanded. As a result:

total revenue will decrease


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