Eco 2305: Elasticity

Cross-price elasticity of demand uses: absolute values to determine if goods are substitutes or complements. negative and positive values to determine if goods are substitutes or complements. only positive values to determine if goods are substitutes or complements. only negative values to determine if goods are substitutes or complements.

negative and positive values to determine if goods are substitutes or complements.

The price elasticity of demand is a negative number because: of the direct relationship of price and quantity. of the law of demand. consumers are not predictable. it is the inverse of the price elasticity of supply.

of the law of demand.

When the product price falls from $80 to $60, the quantity demanded rises from 500 to 800 units. The slope in this range is: -15. -0.29. -0.067 0.46.

-0.067

When the product price rises from $150 to $200, the quantity demanded falls from 1,000 to 800 units. Using the simple standard (non-midpoint) formula, the price elasticity of demand in this range is: -0.60. -1.67. -4.00. -0.25.

-0.60.

Suppose that when the price of gasoline is $3.50 per gallon the total amount of gasoline purchased in the United States is 6 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon the total amount of gasoline purchased is 8 million barrels per day. Based on these numbers and using the simple formula, the percentage change in price is: -42.9%. -14.3%. -2.33%. -33.33%.

-14.3%.

When the product price falls from $80 to $60, the quantity demanded rises from 500 to 800 units. Using the simple formula the price elasticity of demand in this range is: -0.067. -0.62. -2.40. -15.

-2.40.

If the cross-price elasticity of hamburgers and ketchup is −0.6, and the price of hamburgers increases by 50%, how would be the percentage change in the quantity of ketchup demanded? 0.3% −30% 30% −0.3%

-30% Reason: -0.6*50

Demand is perfectly inelastic when the value of the price elasticity of demand is _______

0

Suppose the cross-price elasticity of beef and pork is 0.3. If the price of beef increases by 25%, the quantity of pork demanded would change by ___________%. (Only enter the number; the % sign is there for you.)

0.2 Reason: To find the cross-price elasticity, divide the percentage change in quantity demanded of almond butter by the percentage change in the price change of peanut butter. Ealmond butter/peanut butter = 5%/25% = 0.2

If the price of coffee decreases by 50%, causing the quantity demanded of tea to decrease by 20%, then the cross-price elasticity for coffee and tea is: 2.5 0.25 4 0.4

0.4 Reason: To find the cross-price elasticity, divide the percentage change in the quantity demanded of tea by the percentage change in the price of coffee. Etea/coffee =−20%−50% = 0.4

Suppose that when the price of gasoline is $3.50 per gallon, the total amount of gasoline supplied in the United States is 8 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon, the total amount of gasoline supplied is 6 million barrels per day. Based on these numbers and using the midpoint formula, the price elasticity of supply for gasoline is: 0.50. 1.86. 2.00. 0.54.

1.86

Suppose that the quantity of umbrellas demanded at a price of $5 is 2000 units. The company's total revenue is $

10,000

Suppose the cross-price elasticity of peanut butter and jelly is −0.8. If the price of peanut butter decreases by 25%, the percentage change in the quantity of jelly demanded is __________%. (Only enter the number; the % sign has been provided for you.)

20

When there is a 20% increase in the price of sweaters, and the price elasticity of supply is 1.5, the percentage change in the quantity supplied of sweaters is ________%

20% * 1.5 = 30%

Suppose that the quantity of umbrellas demanded at a price of $8 is 2,500 units. The company's total revenue is $_________

20,000

Suppose the cross-price elasticity of travelling by bus and travelling by train is 0.7. If the price of traveling by bus increases by 40%, how much would the quantity of traveling by train change? 0.28 0.57% 28% 57%

28%

Suppose the cross-price elasticity of travelling by bus and travelling by train is 0.7. If the price of traveling by bus increases by 40%, how much would the quantity of traveling by train change? 57% 28% 0.57% 0.28

28% Reason: 0.7*40

Suppose that the quantity of umbrellas demanded at a price of $10 is 3,000 units. The company's total revenue is $___________.

30,000

Suppose that when the price of gasoline is $3.50 per gallon the total amount of gasoline purchased in the United States is 6 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon the total amount of gasoline purchased is 8 million barrels per day. Based on these numbers and using the simple formula, the percentage change in quantity demanded is: 2.33%. 42.9%. 14.3%. 33.33%.

33.33%.

Suppose the cross-price elasticity of beef and pork is 0.3. If the price of beef increases by 25%, the quantity of pork demanded would change by ________%. (Only enter the number; the % sign is there for you.)

7.5

Which item would be considered the most elastic? A car A candy bar A cup of coffee

A car Reason: A car is considered to be the most elastic for many reasons, including that the proportion on income spent on a car is much higher than the rest of the items

which of the following statements are true A. relationship exists between slope and elasticity, but they are not the same thing. B. Elasticity is the inverse of slope C. The elasticity calculation uses percentage changes in the price and quantity D.Slope uses changes in price and quantity E. Slope is the inverse of elasticity

A, D, E

Which of the following uses negative and positive values to assess whether goods are substitutes or complements? Price elasticity of demand Income elasticity Price elasticity of supply Cross-price elasticity

Cross-price elasticity

If Es = 4.25, the supply is: elastic. unit-elastic. inelastic.

Elastic

Economists use the concept of ________ to examine a wide variety or relationships and measure the degree of responsiveness

Elasticity

Which of the following is true? Price elasticity of demand and slope are the same along a non-linear demand curve. Price elasticity of demand and slope are not always the same along a non-linear demand curve. Price elasticity of demand and slope are not always the same along a linear demand curve. Price elasticity of demand and slope are the same along a linear demand curve.

Price elasticity of demand and slope are not always the same along a non-linear demand curve. Price elasticity of demand and slope are the same along a linear demand curve.

Which of the following statements are true? Elasticity is the inverse of slope. Slope uses changes in price and quantity. The elasticity calculation uses percentage changes in price and quantity. Slope is the inverse of elasticity. A relationship exists between slope and elasticity but they are not the same thing.

Slope uses changes in price and quantity. The elasticity calculation uses percentage changes in price and quantity. A relationship exists between slope and elasticity but they are not the same thing.

For which of the following type of goods will there definitely be a direct relationship between income and demand? Complementary goods Inferior goods Substitute goods Normal goods

Substitute goods

Whether a good or a service is a luxury or a necessity is determined by the __. buyer seller economist government

buyer

Whether a good or a service is a luxury or a necessity is determined by the __________

buyer

When two goods are ___________, the cross-price elasticity of demand is negative.

complementaryco

If the price of good A increases and generates a decrease in the demand for Good B. then the two goods are _____. As a result the cross-price elasticity will be ______. normal; negative substitutes; positive substitutes; negative complements; negative

complements; negative

The slope of a linear demand curve is _____ along the curve. increasing constant decreasing convex

constant

If we want to evaluate the effect of a change in price of one good on the quantity demanded of a different good we use: price elasticity of supply. price elasticity of demand. income elasticity of demand. cross-price elasticity of demand.

cross-price elasticity of demand.

The percentage change in the quantity demanded of one good divided by the percentage change in the price of another good is the: price elasticity of demand. income elasticity of demand. cross-price elasticity of demand. price elasticity of supply.

cross-price elasticity of demand.

A price elasticity of supply of 0.50 means that if the price decreases by 1% the quantity supplied will ______ by ________%.

decrease; 0.5

Income elasticity of demand is a measure of how responsive: demand is to a change in consumer income. demand is to a change in price. price is to a change in consumer income. income is to a change in demand.

demand is to a change in consumer income.

In the __________ range of the demand curve, the percentage change in quantity demanded is greater than the percentage change in price.

elastic

In economics, a measure of how responsive one variable is to a change in another variable is: elasticity. opportunity cost. marginal utility. marginal analysis.

elasticity

Price ________ of supply is a measure of how responsive quantity supplied is to a change in price

elasticity

A price elasticity of demand of -0.50 means that if the price increases by 1%, the quantity demanded will ___________by ______________% (Use a number. % sign is already given).(Enter one word in the first blank and a number in the second blank.)

fall;0.5

Relatively elastic demand curves tend to be _____ than relatively inelastic demand curves. steeper flatter vertical negatively sloped

flatter

The __________ the change in price, the less reliable the elasticity estimate is going to be.

greater

Economists find elasticity useful because it: has no units attached to it and can be used to compare elasticities across different consumers. has no units attached to it and can be used to compare elasticities across different goods and countries. is a percentage that can be used to compare elasticities across different goods and countries. is a percentage that can be used to compare elasticities across different consumers.

has no units attached to it and can be used to compare elasticities across different goods and countries.

Over time, the _____ period becomes the _____ run and the _____ run becomes the _____ run.

immediate short short long

If demand is elastic, a decrease in prices will ____________ total revenue

increase

When two goods are substitutes, if the price of good A increases, it generates a(n) ___________ in the demand for good B.

increase

In the (elastic/inelastic) range of the demand curve, the percentage change in quantity demanded is less than the percentage change in price.

inelastic

The lower range of the linear demand curve is relatively

inelastic

When demand is________ , consumers are less responsive to changes in prices

inelastic

When there are few substitutes for a good or service demand tends to be relatively more ________

inelastic

Demand is perfectly elastic when the value of the price elasticity of demand is

infinite

Demand is perfectly elastic when the value of the price elasticity of demand is __________

infinite

Businesses are interested in the price elasticity of demand because: they can more easily keep track of their competitors. it allows them to estimate the potential changes in price associated with changes in the quantity demanded of their products. it allows them to estimate the potential changes in the quantity demanded associated with changes in the prices of their products. it allows them to gauge how consumers are responding to product changes.

it allows them to estimate the potential changes in the quantity demanded associated with changes in the prices of their products.

The greater the change in price, the __________ reliable the elasticity estimate is going to be.

less

When demand is inelastic, consumers are ___________ responsive to changes in prices.

less

The time periods associated with a set of supply curves include: the long run. the market period. the short run. the immediate period.

long and short run, the immediate period

The __________ range of the linear demand curve is relatively less elastic

lower

_________ definition influences the number of substitutes.

market

The more a good or a service is considered to be a luxury, the relatively _____ _____ demand will be. less elastic more elastic not elastic negative elastic

more elastic

If the price of good A increases and generates a decrease in the quantity of good B demanded, then the cross-price elasticity of demand is ________

negative

With cross-price elasticity of demand,: positive value indicates complements and negative value indicates substitutes. positive value indicates substitutes and negative value indicates complements. a zero value indicates substitutes and an infinity value indicates complements. a fractional value indicates complements and a value greater than one indicates substitutes.

positive value indicates substitutes and negative value indicates complements.

The _______ sign with ________ elasticity of supply indicates the direct relationship that exists between price and quantity supplied.

positive; price

______ elasticity of supply is a measure of how responsive quantity supplied is to a change in price.

price

Businesses are interested in the _____________ because it allows them to estimate the potential changes in the quantity demanded associated with changes in the prices of their products. supply curve tax rate price elasticity of supply price elasticity of demand

price elasticity of supply

Cross-price elasticity of demand is a measure of the effect of a change in the: price of one product on its quantity demanded. price of one product on the quantity demanded of another. quantity demanded of one product on its own price. quantity demanded of one product on the price of another.

price of one product on the quantity demanded of another.

The ________ run is the time period in which at least one input of production is fixed but other inputs can be changed.

short

When two goods are _________, cross-price elasticity of demand is positive.

substitutes

If the price of good A increases and generates an increase in the demand for Good B, then the two goods are _____. As a result the cross-price elasticity will be _____. substitutes; positive normal; negative substitutes; negative complements; positive

substitutes; positive

The slope of a linear demand curve is: the change in quantity demanded divided by the change in price. the change in price divided by the change in quantity demanded. the change in quantity demanded multiplied by the change in price. the change in price multiplied by the change in quantity demanded.

the change in price divided by the change in quantity demanded.

The greater the change in price,: the less reliable the elasticity estimate is going to be. the greater the elasticity estimate is going to be. the more reliable the elasticity estimate is going to be. the smaller the elasticity estimate is going to be.

the less reliable the elasticity estimate is going to be.

Along the elastic range of the demand curve,: the percentage change in quantity demanded is less than the percentage change in price. the percentage change in quantity demanded is greater than the percentage change in price. the percentage change in quantity demanded equals the percentage change in price.

the percentage change in quantity demanded is greater than the percentage change in price.

Along the inelastic range of the demand curve,: the percentage change in quantity demanded equals the percentage change in price. the percentage change in quantity demanded is greater than the percentage change in price. the percentage change in quantity demanded is less than the percentage change in price.

the percentage change in quantity demanded is less than the percentage change in price.

Because an inverse relationship exists between the price and the quantity demanded,: all elasticities are negative. the price elasticity of demand is negative. the price elasticity of demand can never be zero. the price elasticity of demand cannot be calculated.

the price elasticity of demand is negative.

Businesses can estimate the potential changes in the quantity demanded associated with changes in the prices of their products by using: the price elasticity of supply. any elasticity measure. the price elasticity of demand. logarithmic regression analysis.

the price elasticity of demand.

Price elasticity of demand is a measure of how responsive: the quantity demanded is to a change in quantity. the price is to a change in income. the quantity demanded is to a change in price. the price is to a change in quantity demanded.

the quantity demanded is to a change in price.

With cross-price elasticity of demand,: the sign is always positive. the sign is always negative. the sign helps determine whether the goods or services are substitutes or complements. the value of the sign is not important.

the sign helps determine whether the goods or services are substitutes or complements.

When consumers have less ________ to adjust, demand becomes relatively inelastic.

time

When supply changes, if the demand is relatively inelastic, the demand curves will tend to be flatter than if the demand is relatively elastic. (True or false)

true

The _______ range of the linear demand curve is relatively more elastic.

upper

The price elasticity of demand __________ as you move along the demand curve.

varies

Temperature elasticity of demand would be useful if: you owned an ice cream business. you lived on a hill station where it's cold throughout the year. you owned a canned foods factory. you lived near the equator.

you owned an ice cream business.

Suppose the price of movie tickets decreases by 4%, causing the quantity demanded of popcorn to increase by 10%. What would the cross-price elasticity for movie tickets and popcorn be in this example? 0.4 −2.5 −0.4 2.5

−2.5 Reason: To find the cross-price elasticity, divide the percentage change in quantity demanded of almond butter by the percentage change in the price change of peanut butter. Epopcorn/movie tickets = 10%/4% = −2.5

Suppose the price of milk increases by 15%, causing the quantity demanded of cereal to decrease by 45%. What would the cross-price elasticity for milk and cereal be in this case? 3 0.3 −0.3 −3

−3 Reason: To find the cross-price elasticity, divide the percentage change in quantity demanded of almond butter by the percentage change in the price change of peanut butter. Emilk/cereal = −45%/15% = −3

If the cross-price elasticity of hamburgers and ketchup is −0.6, and the price of hamburgers increases by 50%, how would be the percentage change in the quantity of ketchup demanded?

−30% Reason: To find the percentage change in the quantity of ketchup demanded, use the cross-price elasticity formula. Eketchup/hamburgers = (% change in Qd of ketchup)(% change in P of hamburgers)Eketchup/hamburgers = (% change in Qd of ketchup)% change in P of hamburgers −0.6 = % change in Qd of ketchup50% = −30%

As a result of a 4% decrease in income, the quantity of cereal demanded increases by 24%. What is the income elasticity of demand for cereal? 1/6 6 −1/6 −6

−6 Reason: To find the income elasticity, divide the percentage change in quantity demanded by the percentage change in income. Eincome = 24%−4% = −6