Econ Chapter 6

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:

$.75 (.15/.20)

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____.

$209; $204.25 ($1.10 X 190; $.95 X 215)

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 180. If the price is $1.55, total revenue is _____, and if the price is $2.00, total revenue is _____.

$341; $360 ($1.55 X 220; $2.00 X 180)

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

.2; inelastic (.1/.5=.2)

If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity demanded increases from 190 bags to 210 bags, then the price elasticity of demand (by the midpoint method) is:

.5

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:

1.17

What demand curve has the lowest price elasticity?

A vertical demand curve

A demand curve has

Both elastic and inelastic price elasticities of demand

The percentage change in quantity demanded of one good or service divided by the percentage change in the price of a related good or service is the _____ of demand.

Cross-price elasticity

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

Different elasticities, depending on whether price decreases or increases.

If the price of chocolate-covered peanuts decreases from $1.15 to $1.05 and the quantity demanded increases from 190 bags to 220 bags, then the price elasticity of demand (mid-point method) is:

Greater than 1

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, all other things unchanged, demand will:

Increase by 2.9%

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?

Quantity demand will decrease, total revenue will rise

If the demand is elastic, the _________ effect dominates the __________ effect, and a _____________ in price will cause total revenue to rise.

Quantity; price; decrease

If your purchases of shoes increases from 9 pairs to 11 pairs per year when the price f shirts increases from $8 to $12, for you, shoes and shirts are considered:

Substitute goods

Total revenue is:

The price of the good times the total quantity of the good that is sold.

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

The responsiveness of the quantity change to the price change.

The city government is losing millions of dollars on its buses and subways. The government proposes to increase the fare by 20% to raise revenue and has asked your advice. You know that the price elasticity of demand for mass transit in the city is approximately equal to 0.75. Which of the following statement is correct?

The ridership (quantity demanded) will decrease by 15% (.20 X .75)

If the estimated price elasticity of demand for foreign travel is 4:

a 20% decrease in the price of foreign travel will increase quantity demanded by 80%

If a good is a necessity with few substitutes, then the demand will tend to:

be more price-inelastic

A perfectly price-inelastic demand curve is

vertical