Chapter 6
Demand is inelastic when
%ΔQD <%ΔP
Demand is elastic when
%ΔQD >%ΔP.
Cross-price elasticity can be calculated
EXY = ΔQX/ΔPY×PY/QX
Demand is considered elastic when
consumers are very responsive to changes in prices.
A(n) _______ good is a good whose quantity demanded increases when income decreases.
inferior
The price elasticity of demand is always
negative
The cross-price elasticity of a good measures the responsiveness of the quantity demanded of the good to changes in _____.
the price of a related good
Suppose the equation for the demand curve is Q = 100 - 2P. At a price of $20 and a quantity of 60 units, the elasticity of demand is _____.
-2/3
______ is the addition to total revenue attributable to selling one additional unit of output.
Marginal revenue
The elasticity varies along a curvilinear demand because
both the ratio of price to quantity and the slope changes.
Income elasticity measures the responsiveness of consumers to changes in _____.
income
If price elasticity of demand is inelastic, when prices increase, total revenue will
increase
When price increases on the inelastic portion of the demand curve, total revenue will
increase
When the price of milk increases, consumers' demand will be ______ elastic initially, but ______ elastic over time.
less, more
When demand is elastic, marginal revenue is
positive
The _______ measures the responsiveness of consumers to changes in the price of that good or service.
price elasticity of demand
Total revenue is
price times quantity.
If the price elasticity of demand is -1, when prices increase, total revenue will _____.
remain the same
If the cross-price elasticity between two goods is positive, the goods are
substitutes
Marginal revenue is the slope of
the total revenue function.
If the cross-price elasticity between two goods is zero, the goods are
unrelated
If a product has many substitutes available, one would expect that consumers would be _______ to changes in prices, so that the product would have _______ demand.
very responsive; elastic
The elasticity varies along a linear demand curve because
while the slope doesn't change, the ratio of price to quantity changes.
If the slope of the demand curve is -2, at the point where price is $3 and the quantity is 20 units, the elasticity is
-0.3
If the slope of the demand curve for a good is -2 over the interval where price ranges from $2 to $4 and quantity ranges from 7 units to 5 units, the price elasticity of demand is ______.
-1
When calculating elasticity at a point on the demand curve, one should use the formula
E=ΔQ/ΔP×P/Q
Which of the following correctly states the formula for the Income elasticity of demand?
EM = ΔQ/ΔM×M/Q
When calculating elasticity over an interval on the demand curve, one should use the formula
E=ΔQ/ΔP×Average P/Average Q
Which of the following products are likely to have inelastic demand?
Gasoline electricity Insulin
The percentage of income spent on a good helps to determine its elasticity. Which of the following goods are likely to have an inelastic demand?
Hamburgers Gallons of milk Table salt
If an economist knows the price of a product and the elasticity of demand at that price, she can calculate marginal revenue from the formula
MR = P(1+1/E)
If the price elasticity of demand is -3, when prices increase, the total revenue will _____.
decrease
When price increases on the elastic portion of the demand curve, total revenue will:
decrease
When a good's price is a relatively high percentage of a consumer's income,the demand for that good will be
elastic
If the price elasticity of demand for a product is -3 and the quantity sold increases by 6%, the price
fall by 2%
If the price elasticity of demand for a product is -2 and managers raise the price of that product by 3%, the managers should expect that the quantity sold will
fall by 6%.
The longer a consumer has to respond to a price change, the _______ the demand.
more elastic
When demand is inelastic, marginal revenue is
negative
A(n) _______ good is a good whose quantity demanded increases when income increases.
normal
