Exam 2
Holly enjoys consuming good Y. If the price of good Y falls and Holly decides to buy more of good Y solely because it is relatively less expensive, this describes the...
Substitution effect
Along the lower half of a downward-sloping linear demand curve, the price elasticity of demand will be:
price-inelastic
If the price elasticity of demand is found to be 0.75, then demand is:
price-inelastic
If total revenue goes down when price falls, the price elasticity of demand is said to be:
price-inelastic
In the figure above, at a price of $15 total spending on this product is equal to ..., and if the price fell to $10, total spending would ..., because demand is ..., in this range.
$150...rise...elastic
Each month Jessica buys exactly 4 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is:
0
Each month Jackie spends exactly $50 on ice cream regardless of the price of each container. Jackie's price elasticity of demand for ice cream is:
1
In the table, when income changes from $1,000 to $1,400 per month, the income elasticity of demand for pizza of $14 per pizza is:
1.67
Gas prices recently increased by 25%. In response, the purchase of gas decreased by 5%. Based on this data, the price elasticity of demand for gas is?
5%÷25% = 0.05÷0.25 = 0.2
If the estimated price elasticity of demand for foreign travel is 4, then:
A 20% decrease in the price of foreign travel will increase the quantity demanded by 80%
If the demand for golf is price-inelastic and your local gold course increases the greens fees for using the course, you would expect:
An increase in total revenue received by the course
If the demand for golf is price-inelastic and your local public golf course increases the greens fees for using the course, you would expect:
An increase in total revenue received by the course
The seller's total revenue at point S equals the:
Area OPSM
Housing is a good that tends to take up a substantial share of a consumer's spending. If the price of housing increases, this will result in:
Both income and substitution effects decrease the quantity demanded of housing
Suppose the cross elasticity between demand for Burger King burgers and the price of McDonald's burgers is 0.8. If McDonald's increases the price of its burgers by 10%, then:
Burger King will sell 8% more burgers
For which of the following pairs of goods is the cross-price of elasticity of demand most likely to be approximately zero?
Cake and airplane tickets
10% more peanut butter on the shelves
Cross price elasticity of demand for butter and margarine is equal to 0.96 and cross price elasticity of demand of water and lemon is -0.13. This meand that butter and margarine are ..., while water and lemon are ...,
Economists who study the gizmo market have determined that the price elasticity of demand is equal to 0.25. If we observe the quantity of gizmos demanded rising by 8%, we can determine that the price of gizmos has...
Fallen by 32% ... 8% / 25% = 0.32 = 32%
The absolute value of the price elasticity of demand for gasoline in the short run has been estimated to be 0.1. If a supply disruption causes the price of gasoline to increase, how will that affect total expenditures on gasoline in the short run, all other things equal?
Demand will stay the same, but total expenditures will rise
One would expect to see the supply of farm produce become more price ... as harvest season approaches and crops are being brought in from the fields.
Elastic
At prices greater than $8, demand is..., while prices below $8 are ..., and demand at $8 will be ...
Elastic; inelastic; unit-elastic
The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that:
Electricity and natural gas are substitutes
A rancher in Oklahoma decides to raise the price of her beef by 19% over what the market price equals. If the demand for beef is perfectly elastic, this rancher's quantity demanded will?
Fall to 0
The demand for strawberry ice cream tends to be relatively price-elastic because
For most people, there are many close substitutes for strawberry ice cream
The price of a gallon of gasoline has increased 10% this year. As a result, which of the following events is most likely to occur?
Gasoline expenditures will increase if gasoline is an inelastic good
Which graphs show a perfectly elastic supply curve?
Graph D → horizontal supply curve
Using the numbers in the figure, the elastic range of the demand curve is where prices are...
Greater than $10 ... (The higher side of the curve)
To say that two goods are substitutes, their cross-price elasticities of demand should be:
Greater than 0.
If the percentage change in the quantity demanded of a good is greater than the percentage change in income, then this good will have an income elasticity...
Greater than 1 and it is a normal good
Products that tend to have price-elastic demand often...
Have many substitute products available to consumers
After you graduate from college, you open a business selling computers. There are many other businesses in your city that sell similar computers. Based on this information, the price elasticity of demand for the computers that your business sells will be:
Highly elastic
The pair of items that is most likely to have negative cross-price elasticity of demand is:
Hot dogs and mustard
The pair of items that is most likely to have a negative cross price elasticity of demand is..
Hot dogs and mustard If the income elasticity of demand for a good is negative, the good is said to be a(n)...
Other things being equal, the price elasticity of demand for a product will be lower:
If there are few or no substitutes available
Substitutes, complements → 0.96 is positive and less than 1 while -0.13 is negative
If two goods are complements, their cross-price elasticity of demand should be: Less than 0
The percent change in quantity demanded divided by the percentage change in income, all other things unchanged, is the:
Income elasticity of demand
Suppose the cross-price elasticity between two goods is 1.5. If the price of one good increases by 10%, then the quantity demanded of the other good will...:
Increase by 15%
If a good is very inexpensive, but is a necessity with very few substitutes, you would predict the price elasticity of demand for the good is:
Inelastic
If the price of a heart transplant, an inelastic good, doubles in a one-month period, how will this affect the number of heart transplants demanded?
Little impact on quantity demand
The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a huge crop, they will experience...
Lower prices, greater quantities sold, and lower incomes
Johnson's income elasticity of demand for pizzas is:
Negative
Kayla and Jada are roommates in NYC. Both Kayla and Jada recently received pay raises. Kayla now buys more movie tickets than before, but Jada buys fewer. Kayla behaves as if movie tickets are ... goods and Jada's income elasticity of demand for movie tickets is ...
Normal and negative
Yovanka has diabetes and she will pay any amount of money to buy the insulin she needs to stay alive. Yovanka's price elasticity of demand for insulin is?
Perfectly inelastic
If the income elasticity of demand for a good is ..., the good is said to be ...,
Positive and a normal good
If the quantity supplied responds substantially to a relatively small change in price, supply would be:
Price elastic
The price elasticity of demand for ski lessons in New Hampshire is greater than 1.00. This means that the demand for ski lessons is ... in New Hampshire.
Price elastic
The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect the price of tomatoes and total revenue from fresh tomatoes, all other things unchanged?
Price will decrease; total revenue will rise
If the absolute value of the price elasticity of demand is found to be 6, then demand is:
Price-elastic
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 affect the quantity demanded and total revenue from gasoline in the short run, all other things unchanged?
Quantity demanded will decrease... total revenue will rise
The university president believes that increasing student tuition by 5% will increase revenues. If the president is correct that revenue will increase, then the tuition increase will:
Reduce the number of students enrolling by less than 5%
When the price goes down, the quantity demanded goes up. Price elasticity measures how:
Responsive the quantity change is in relation to the price change
Good A and B have positive cross price elasticity of demand. This means Goods A and B are:
Substitutes
Which of the following would most likely be an inelastic good?
Toilet paper
Inferior good
Suppose you manage a convenience mart and are in charge of ordering products but do not set the price. In your area, the income elasticity of demand for peanut butter is -0.5. Due to the local factory closing, you expect local incomes to decrease by 20%, on average, in the next month. As a result, you should...
The income effect of a change in the price of a good are more important for goods that?
Take up a substantial share of a consumer's spending
A good is likely to have an inelastic demand curve if...
The good has few available substitutes
Which of the following is likely to make supply more inelastic?
The inputs necessary for production cannot readily be increased
The price elasticity of good will tend to be greater:
The longer the relevant time period
The price elasticity of demand for a good such as water is likely to be very low because...
The price is very low
If demand is elastic, then:
The quantity effect dominates the price effect, and a decrease in price causes total revenue to rise
The demand curve for a normal good will always slope downward because:
The substitution effect and the income effect reinforce each other, and the substitution effect always displays an inverse relation between the price and quantity demanded
Wally World increased the price of a unicorn burger from $3 to $3.10. However, their sales of unicorn burgers went from 500 to 150. Which is true of unicorn burgers at Wally World?
They are an elastic good
Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?
Total revenue will fall because the decrease in quantity demanded is LARGE relative to the increase in price
A demand curve that is perfectly inelastic is:
Vertical
