Econ chapter 2.4 2.5 2.6 2.7

Elastic you lower prices to

Increase profit

Inelastic you rise prices to

Increase profit

Milk is an inexpensive good that most would consider a necessity. You would therefore expect it's demand to be

Inelastic

Suppose the price elasticity of demand for Baconstors at Wendy's is .6. This means the demand for Baconators is:

Inelastic

If demand is ___, a higher price yields ___ total revenue

Inelastic, higher

Negative income elasticity of demand

Inferior good ( as income rises, quantity demanded decreases)

Since consumers like to search for the best deal demand

Is more elastic

If an increase in the price of coconut oil brings about an increase in total revenue, then the percent rise in price is _____ in magnitude than the percent decline in quantity demanded.

Larger

In general, the long run price elasticity of demand for a good tends to be ___ the short run price elasticity of demand for it

Larger than

With fewer substitutes, demand tends to be

Less elastic

The income effect has you buying ___ of the good when the income ___

Less, goes up

Greater than 1 elasticity of demand

Luxury good

If the price of emergency visits to the dentists rose, we would expect:

Only a slight decline in the number of emergency visits to the dentist

Responsiveness of demand changes due to

Opportunity cost because Ep is all about how good the next alternative is

Demand gets more elastic

Over time

Inelastic

Price change does not change the quantitiy demanded a lot

Inelastic demand curve

Steep because quantity demanded is unresponsive

Elasticity demand all on

Substitutes

Positive cross price elasticity of demand

Substitutes - as price of one good increases, the demand for the second good increases The 2 goods are in competitive demand

Income elasticity of demand measures how responsive the:

Quantity demanded of a good is to the changes in income

Perfectly elastic

Quantity responds infinitely to price Percent change in price results in an infinite percent change in demand

If a certain item has many substitues, it's demand curve will be:

Relatively flat

If a consumer has more time to search for a low - cost alternative for an item, the demand curve for that item will be:

Relatively more elastic

If an item is a necessity rather than a luxury, it's demand curve will be:

Relatively steep

When demand is Inelastic a decrease in summerly increases

Revenue

A Smoothie King manager has estimated that the price elasticity of demand for exotic fruit smoothies is 2. If the store increases menu prices by 5%, she can expect the quantity of exotic fruit smoothies sold to decrease by _____ and total revenue to _____.

10%, fll

The demand curve for one particular brand of cough syrup will be ___ the demand curve for cough syrup as a general categories

Be more elastic than

The price elasticity of demand for canned fruit is calculated as .75. Given this, demand is:

Inelastic

When percentage change in price is greater than the percentage change in quantity demanded, demand is said to be:

Inelastic

You manage a restaurant, and lately revenues have been rather poor. One of your waiters suggests that raising food prices will increase revenues, but your chef suggests that decreasing food prices will increase revenues. You aren't sure who is right, but you know that your waiter believes that the demand for your food is _____, and your chef believes that the demand for your food is _____.

Inelastic, elastic

Elastic demand curve

Flat because quantity demand in responsive

Revenue

Price x Quantitiy

Income elasticity of demand

% change in quantity / % change in income

Ep (elasticity demand formula)

% change in quantity / % change in price

Cross price elasticity

% change in quantity of one good / % change in price of another good

The price of product A is cut by 50%. As a result, the quantity demanded of product B rises by 50%. The cross price elasticity of demand between products A and product B is ___ and they

-1; complements

Because of declining stocks in the Caspian Sea, Beluga caviar prices recently increased by a whopping 25% (to about $700 per ounce). As a result, purchases of Beluga caviar decreased by 5%. The price elasticity of demand for Beluga caviar is:

.2

The state of Texas recently saw a gasoline price increase of 5%, which brought about a fall in the quantity of gasoline purchases of 1%. The price elasticity of demand is equal to ___ and demand is described as ___

.2, Inelastic

Each month Jamie buys exactly 15 mcwraps, regardless of the price. Jamie's price elasticity for mcwraps is:

0

What determines how elastic a demand curve is?

1. Availability of substitues 2. Definition of the market 3. Need 4. The share of budget 5. Adjustment time

If I come rises by 10% and the quantity demanded of an item rises by 20% , the income elasticity of demand for this item is:

2

Butter producers know that the price elasticity of demand for butter is .2. If they want to increase sales by 4%, they will have to lower the price by

20%

Is the price elasticity of demand for air travel is 4:

A 20% decrease in the price of air travel will increase quantity demanded by 80%

Inelastic demand

A situation in which an increase or a decrease in price will not significantly affect quantity demand for the product / Ep is less than 1 Quantity is unresponsive

Negative cross price elasticity of demand

Complements - as price of one good increases, the demand for the second good decreases These 2 good are in joint demand

price elasticity of demand

Consumers responsivemess or sensitivity to changes in price

Perfectly elastic

Curve is horizontal and Ep is infinite

Perfectly elastic

Curve is vertical and Ep is 0

Share of budget

Demand for a good is more elastic when the good takes a lot of the budget

Definition of market

Demand for a particular gas station will be more elastic then the demand for all gas stations

The cross price elasticity of demand measures how responsive the:

Demand for one good is to a change in the price of another good

Elastic demand

Demand in which changes in price have large effects on the quantities demanded / Ep is greater than 1 Quantity is responsive

Which of the following statements about the price elasticity of demand is correct?

Demand is more elastic in the long run than in the short run

Specific brands can be substituted

Easier than broad categories and have greater elasticity

The price elasticity of demand for snowboarding lessons at Jay Peak resort in Vermont is greater than 1. This means that the demand for snowboarding lessons is ___

Elastic

A linear demand curve has

Elastic, Inelastic, and unit elastic segments

If the price of herring increases by 8%, and the quantity demanded falls by 20%, demand is _____. This increase in price will therefore lead to a _____ in total revenue.

Elastic, decrease

If demand is ___, a higher price yields ___ total revenue

Elastic; lower

Unit Elastic

Equals 1 Percent change in quantity balances out the percent change in price

Availability of substitutes

Fewer substitutes means less elastic demand more substitutes means more elastic demand

Which of the following could explain why the demand for table salt is Inelastic

Households devote a very small portion of their income to salt purchases

Perfectly elastic

If price increases are all you will buy the other option

Demand for soda outside an airport is more elastic than inside of the airport because:

More choices makes demand more elastic

Demand for a luxury item tends to be

More elastic

Demand for an item that uses a large portion of your budget tends to be

More elastic

More competing products means

More substitutes and greater elasticity

Perfectly Inelastic

No matter change in price they will always buy the product

Perfectly Inelastic

No matter that the price is, the quantity demanded will always be the same Price elasticity of demand = 0

Positive income elasticity of demand

Normal good (as income increases, quantity demanded increases) Greater than 0 but less than 1

Adjustment time

The longer the time horizon the more elastic the demand

The slope of the demand curve is not used to measure the price elasticity of demand because

The measurement of slope I sensitive to the units chosen for price and quantity

Need

The more a good is a necessity the more Inelastic the demand will be

Which factors do determine the price elasticity of demand

The number of available substitutes The time available to adjust price Whether or not the good is a necessity

The elasticity demand formula tells us...

The responsiveness of the quantity demanded

Which factor does NOT determine the price elasticity of demand?

The slope of the supply curve

Elastic means a modest price rise will lead

To a large decline in quantitiy

Inelastic means a large price rise will lead

To a modest decline in quantitiy

Suppose the price elasticity of demand for lemons is 1.8. If a fall frost destroys one-third of the nation's lemon crop, how will that affect total revenue from lemons, all other things equal?

Total revenue will fall

Two products have a cross price elasticity of demand of 1.5. Based on this value of cross price elasticity, which of the following products are they most likely to be

Two competing brands of soft drinks *positive so it would be substitutes*

Suppose the percent change in the quantity demanded for water for any price change is zero. The demand curve for water would be ____ and the price elasticity of demand is perfectly ___

Vertical, Inelastic

Which statement best characterizes the relationship between the elasticity of demand, price, and total revenue?

When demand is elastic and price falls, total revenue rises