econ chapt 4 and 5

An elastic demand or elastic supply is one in which the elasticity is ...

An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price (e>1)

An inelastic demand or inelastic supply is one in which elasticity is ..

An inelastic demand or inelastic supply is one in which elasticity is less than one, indicating low responsiveness to price changes. (e<1)

Unitary elasticities indicate ...

Unitary elasticities indicate proportional responsiveness of either demand or supply (e=1)

. If the income elasticity of demand for a good is negative, it must be a. an elastic good. b. an inferior good. c. a normal good. d. a luxury good.

b. an inferior good

If consumers think that there are very few substitutes for a good, then a. supply would tend to be price elastic. b. none of these answers. c. demand would tend to be price inelastic. d. demand would tend to be price elastic. e. supply would tend to be price inelastic

c. demand would tend to be price inelastic

An inferior good is one for which an increase in income causes a(n) a. decrease in supply. b. increase in demand. c. increase in supply. d. decrease in demand.

d. decrease in demand

If there is excess capacity in a production facility, it is likely that the firm's supply curve is a. price inelastic. b. none of these answers. c. unit price elastic. d. price elastic.

d. price elastic

If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is a. 1.50. b. 1.15. c. none of these answers. d. 0.15. e. 1.00.

e. 1.00 (total revenue remains constant even when income changes)

T/F An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

false

Perfectly elastic means ...

Perfectly elastic means the response to price is complete and infinite (e=infinity)

Perfectly inelastic means ...

Perfectly inelastic means that there is no change in quantity at all when price changes (e=0)

. Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to €40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small Town? a. 1.4 b. 0.66 c. 0.75 d. 2.0 e. 1.0

a. 1.4

A decrease in supply (shift to the left) will increase total revenue in that market if a. demand is price inelastic. b. supply is price elastic. c. supply is price inelastic. d. demand is price elastic.

a. demand is price inelastic

If demand is linear (a straight line), then price elasticity of demand is a. elastic in the upper portion and inelastic in the lower portion. b. inelastic in the upper portion and elastic in the lower portion. c. inelastic throughout. d. constant along the demand curve. e. elastic throughout.

a. elastic in the upper portion and inelastic in the lower portion. The upper part tends to be elastic while the lower part tends to be inelastic. this is because on the upper part, for example, a one-unit change in the price is a small percentage change while a one-unit change in quantity is a large percentage change. this effect is reversed on the lower part of the demand curve

The law of demand states that an increase in the price of a good a. increases the supply of that good. b. decreases the quantity demanded for that good. c. decreases the demand for that good. d. increases the quantity supplied of that good. e. none of these answers.

b. decreases the quantity demanded of that good

If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is a. a normal good. b. none of these answers. c. an inferior good. d. a substitute good. e. a complementary good.

c. an inferior good

If supply is price inelastic, the value of the price elasticity of supply must be a. infinite. b. zero. c. less than 1. d. none of these answers. e. greater than 1.

c. less than 1

If an increase in the price of a good has no impact on the total revenue in that market, demand must be a. all of these answers. b. price inelastic. c. unit price elastic. d. price elastic.

c. unit price elastic

If demand is more inelastic than supply, do consumers or sellers bear most of the tax burden?

consumers

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today? a. The impact on both price and quantity is ambiguous. b. Price will decrease; quantity is ambiguous. c. Price will increase; quantity will decrease. d. Price will increase; quantity is ambiguous. e. Price will increase; quantity will increase.

d. price will increase, quantity is ambiguous

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to a. increase total revenue to farmers as a whole because the demand for food is elastic. b. increase total revenue to farmers as a whole because the demand for food is inelastic. c. reduce total revenue to farmers as a whole because the demand for food is elastic. d. reduce total revenue to farmers as a whole because the demand for food is inelastic.

d. reduce total revenue to farmers as a whole because the demand for food is inelastic

Suppose there is an increase in both the supply and demand for personal computers. Further, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect a. the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall. b. the equilibrium quantity to rise and the equilibrium price to rise. c. the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous. d. the equilibrium quantity to rise and the equilibrium price to fall. e. the equilibrium quantity to rise and the equilibrium price to remain constant

d. the equilibrium quantity to rise and the equilibrium price to fall

A decrease (leftward shift) in the supply for a good will tend to cause a. an increase in the equilibrium price and quantity. b. a decrease in the equilibrium price and an increase in the equilibrium quantity. c. none of these answers. d. a decrease in the equilibrium price and quantity. e. an increase in the equilibrium price and a decrease in the equilibrium quantity.

e. an increase in equilibrium price and a decrease in equilibrium quantity

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice? a. Price will decrease; quantity is ambiguous. b. The impact on both price and quantity is ambiguous. c. Price will increase; quantity will increase. d. Price will increase; quantity will decrease. e. Price will increase; quantity is ambiguous.

e. price will increase, quantity is ambiguous

suppose there is an increase in both supply and demand for personal computers. In the market for personal computers, we would expect a. the equilibrium quantity to rise and the equilibrium price to rise b. the equilibrium quantity to rise and the equilibrium price to fall c. the equilibrium quantity to rise and the equilibrium price to remain constant d. the change in the equilibrium quantity to be ambiguous and the equilibrium price to rise e. the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous

e. the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous

If the price of a good is above the equilibrium price, a. there is a surplus and the price will rise. b. there is a shortage and the price will fall. c. there is a shortage and the price will rise. d. the quantity demanded is equal to the quantity supplied and the price remains unchanged. e. there is a surplus and the price will fall.

e. there is a surplus and the price will fall

T/F If a demand curve is linear, the price elasticity of demand is constant along it

false

T/F When the price of a good is below the equilibrium price, it causes a surplus

false, quantity supplied is less than quantity demanded

are elasticities normally lower or higher in the short run

lower

the cross elasticity of demand for complementary goods is

negative

The cross elasticity of demand for substitute goods is

positive because the demand for one good increases when the price for the substitute good increases

if supply is more inelastic than demand, do consumers or sellers bear most of the tax burden?

sellers

T/F If the demand for a good is price inelastic, an increase in its price will increase total revenue in that market.

true

T/F if the demand for a . good is price inelastic, an increase in its price will increase total revenue in that market

true

T/F the law of supply states that an increase in the price of a good increases the quantity supplied of that good

true

T/F If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good.

true, an increase in income will lead to a fall in demand

equation for price elasticity of supply or demand

%change in quantity/ %change in price