Econ Exam 2

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.2

When demand is inelastic, an decrease in price will cause

A decrease in total revenue.

Which of the following is not a determinant of the price elasticity of demand for a good?

The steepness or flatness of the supply curve for the good

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is

Unit elastic.

A good will have a more inelastic demand, the

Broader the definition of the market.

If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is

1.33

Demand is said to be price elastic if

Buyers respond substantially to changes in the price of the good.

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

Elastic, and the demand curve will be horizontal.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

Flatter the demand curve will be.

If the price elasticity of supply is 1.2, and price increased by 5 percent, quantity supplied would

Increase by 6 percent.

If the demand for donuts is elastic, then a decrease in the price of donuts will

Increase total revenue of donut sellers.

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. Using the midpoint method, we can conclude that for Heather, macaroni

Is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Lower the price to increase total revenue.

For which of the following types of goods would the price elasticity of demand be relatively large?

Luxuries.

Goods with many close substitutes tend to have

More elastic demands.

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and Pencils

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

Positive, and the good is a normal good.

For a good that is a luxury, demand

Tends to be elastic.

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The good is a luxury.

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's

Demand for cigarettes is perfectly inelastic.

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is

0.47

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

0.67, and an increase in price will result in an increase in total revenue for good A.

If the price elasticity of supply is 1.5, and a price increase led to a 1.8 percent increase in quantity supplied, then the price increase is about

1.20 percent.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.33

The demand for grape-flavored Hubba Bubba bubble gum is likely

Elastic because there are many close substitutes for grape-flavored Hubba Bubba.

If the cross-price elasticity of two goods is negative, then the two goods are

Complements

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

The mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Income elasticity of demand measures how

The quantity demanded changes as consumer income changes.

Demand is said to be inelastic if

The quantity demanded changes only slightly when the price of the good changes.

Cross-price elasticity of demand measures how

The quantity demanded of one good changes in response to a change in the price of another good.

The price elasticity of supply measures how much

The quantity supplied responds to changes in the price of the good.

For which of the following goods is the income elasticity of demand likely lowest?

Water.