Homework 2

When is demand price elastic?

. When the percentage change in quantity demanded is greater than the percentage change in price.

What is the impact of a given shift in demand when supply is relatively more elastic?

. A smaller increase in price.

If 100 units of a good are produced when the price is $10, and 150 units are produced when the price is $15, then what is the elasticity of supply? Use the midpoint formula, and enter your answer to two decimal points.

1

Using the midpoint formula, calculate the price elasticity of portable air conditioners if an increase in price from $300 to $360 leads to an increase in the quantity supplied from 10,000 to 14,000.

1.83

Ali's Gyros operates near a college campus. Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut. He estimates that he would be able to sell 200 gyros per day at $3.50 each. What is Ali's elasticity of demand? Use the midpoint formula, make your answer a positive number, and enter your answer to two decimal points.

2

Suppose that when the price per case of Bullmoose beer rises from $14 to $16, the quantity demanded falls from 300 to 200 cases per week. Using the midpoint formula, calculate the price elasticity of demand (in absolute value) over this range?

3

What is the impact of a cut in price when demand is inelastic?

A decrease in total revenue.

Which of the following is a true statement?

A. The demand curve for a luxury is more elastic than the demand curve for a necessity. B. The more substitutes available for a product, the greater the price elasticity of demand. C. All of the above. D. The more time that passes, the more elastic the demand for a product becomes. C. All of the above

How is the responsiveness of the quantity demanded to a change in price measured?

By dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.

How do economists avoid confusion over units in the computation of elasticity?

By using percentage changes rather than simple differences.

Which good has the least elastic demand?

Gasoline in the short run.

The price elasticity for a particular brand of raisin bran is, in absolute value:

Larger than the elasticity for all breakfast cereals together.

Which of the following goods is likely to have the most elastic demand?

Restaurant Meals.

Which good has the most elastic demand?

Shell gasoline in the long run.

In the lecture video, which good did I say had demand that was almost perfectly inelastic?

The demand for birth attendants, such as obstetricians or midwives.

Which of the following statements about total revenue is correct?

The effect of price changes on total revenue depends on the price elasticity of demand. Answers:A. The effect of price changes on total revenue depends on the cost of the goods sold. B. When the price of a good is lowered, total revenue will necessarily decline. C. The effect of price changes on total revenue depends on the price elasticity of demand. D. When the price of a good is lowered, total revenue will rise because more is sold. C.

Which of the following is true if demand is inelastic?

The price elasticity of demand will be less than 1 in absolute value.

When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?

Zero

If a supply curve is highly elastic, then a small increase in price generates ____________________:

a proportionally larger increase in quantity supplied.

In the video lecture, I said that elasticity can be thought of as which of the following?

a ratio

Suppose that when the price per case of Bullmoose beer rises from $14 to $16, the quantity demanded falls from 300 to 200 cases per week. What will happen to Bullmoose Brewery's total revenue in response to this price increase?

decrease

Suppose the supply of bicycles is price elastic. This means that suppliers

respond significantly to changes in the price of bicycles.

Jerrell's demand for pizza is price elastic. This means that Jerrell

responds significantly to changes in the price of pizza

A price elasticity of demand equals to zero indicates that the demand curve for the product is

vertical.