econ chapter 6

If the quantity supplied responds only slightly to changes in price, then

supply is said to be inelastic.

Suppose demand is perfectly inelastic and the supply of the good in question decreases. As a result,

the equilibrium price increases and the equilibrium quantity is unchanged.

Refer to Figure 5-10. The price elasticity of supply between point A and point B, using the midpoint method, is approximately

.71

Suppose that an increase in the price of carrots from $1.30 to $1.80 per pound increases the quantity of carrots that carrot farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what is the approximate value of the price elasticity of supply?

.89

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are many close substitutes for this good.

Refer to Figure 5-6. A decrease in price from $15 to $10 leads to

a decrease in total revenue of $20, so the price elasticity of demand is less than 1 in this price range.

When demand is inelastic, a decrease in price will cause You Answered

a decrease in total revenue.

In the market for oil in the short run, demand

and supply are both inelastic.

A perfectly elastic demand implies that

any rise in price above that represented by the demand curve will result in a quantity demanded of zero.

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand.

If a person only occasionally buys a cup of coffee, his demand for coffee is probably

elastic.

The greater the price elasticity of demand, the

greater the responsiveness of quantity demanded to a change in price.

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions.

If the price elasticity of supply for wheat is less than 1, then the supply of wheat is

inelastic

In any market, total revenue is calculated by taking the price of the good and

multiplying it by the quantity of the good.

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

negative and therefore the good is an inferior good.

The price elasticity of demand measures how much

quantity demanded responds to a change in price.

The price elasticity of supply measures how responsive

sellers are to a change in price.

Consider airfares on flights between New York and Minneapolis. When the airfare is $250, the quantity demanded of tickets is 2,000 per week. When the airfare is $280, the quantity demanded of tickets is 1,700 per week. Using the midpoint method

the price elasticity of demand is about 1.43 and an increase in the airfare will cause airlines' total revenue to decrease.

Jean-Paul says that he will spend exactly 75 cents a day on M&Ms, regardless of the price of M&Ms. Jean-Paul's demand for M&Ms is

unit elastic.