Ch. 5 Econ
Suppose that at a price of $2.00 per bushel, the quantity supplied of corn is 25 million metric tons. At a price of $3.00 per bushel, the quantity supplied is 30 million metric tons. What is the elasticity of supply for corn? Is supply elastic or inelastic?
(30- 25)/[(25+30)/2] = 0.45, therefore the supply is inelastic. (3-2)/[(2+3)/2]
Suppose your income rises by 20 percent and your quantity demanded or eggs falls by 10 percent. What is the value of your income elasticity of demand for eggs? Are eggs normal or inferior goods to you?
-0.10/0.20 = -1/2. eggs are inferior goods.
Suppose that when the price of apples rises by 20 percent, the quantity demanded of oranges rides by 6 percent. What is the cross-price elasticity of demand between apples and oranges? Are these two goods substitutes or complements?
0.06/0.20 = 0.30, apples and oranges are substitutes because the cross-price elasticity is positive (an increase in the price of apples increases the quantity demanded of oranges)
If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, the fisherman's price elasticity of supply for fresh fish is a. zero b. one c. infinite d. unable to be determined from this information.
A
If a supply curve for a good is price elastic, then a. The quantity supplied is sensitive to changes in the price of that good b. The quantity supplied is insensitive to changes in the price of that good c. The quantity demanded is sensitive to changes in the price of that good d. The quantity demanded is insensitive to changes in the price of that good e. None of the above
A
In general, a flatter demand curve is more likely to be a. Price elastic b. Price inelastic c. Unit price elastic d. None of the above
A
Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to a. reduce total revenue to farmers as a whole because the demand for food is inelastic. b. reduce total revenue to farmers as a whole because the demand for food is elastic. c. increase total revenue to farmers as a whole because the demand for food is inelastic. d. increase total revenue to farmers as a whole because the demand for food is elastic.
A
At which of the following prices does Small Town Cablevison earn the greatest total revenue? a. either $30 or $40 per month because the price elasticity of demand is 1.0 b. $30 per month c. $40 per month d. $0 per month
B
If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for the good is a. Price inelastic b. Price elastic c. Unit price elastic d. Income inelastic e. Income elastic
B
If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is a. 0.15. b. 1.00. c. 1.15. d. 1.50.
B
If supply is price inelastic, the value of the price elasticity of supply must be a. zero b. less than 1 c. greater than 1 d. infinite e. none of the above.
B
If there is excess capacity in a production facility, it is likely that the firm's supply curve is a. Price inelastic. b. Price elastic. c. Unit price elastic. d. none of the above.
B
In general, a steeper supply curve is more likely to be a. Price elastic b. Price inelastic c.Unit price elastic d. None of the above
B
If an increase in the price of a good has no impact on the total revenue in that market, demand must be a. price inelastic. b. price elastic. c. unit price elastic. d. all of the above.
C
If demand is linear (a straight line), then price elasticity of demand is a. constant along the demand curve. b. inelastic in the upper portion and elastic in the lower portion. c. elastic in the upper portion and inelastic in the lower portion. d. elastic throughout. e. inelastic throughout.
C
If the cross-price elasticity between two goods is negative, the two goods are likely to be a. Luxuries b. Necessities c. Complements d. Substitutes
C
If the income elasticity of demand for a good is negative, it must be a. a luxury good. b. a normal good. c. an inferior good. d. an elastic good.
C
The price elasticity of demand is defined as a. The percentage change in price of a good divided by the percentage change in the quantity demanded of that good. b. The percentage change in income divided by the percentage change in the quantity demanded c. The percentage change in the quantity demanded of a good divided by the percentage change in the price of that good d. The percentage change in the quantity demanded divided by the percentage change in income e. None of the above
C
A measure of how much the quantity demanded of one good responds to a change in the price of another elasticity of demand good
Cross-Price Elasticity of Demand
A decrease in supply (shift to the left) will increase total revenue in that market if a. supply is price elastic. b. supply is price inelastic. c. demand is price elastic. d. demand is price inelastic.
D
If consumers think that there are very few substitutes for a good, then a. supply would tend to be price elastic. b. supply would tend to be price inelastic. c. demand would tend to be price elastic. d. demand would tend to be price inelastic. e. none of the above is true.
D
The demand for which of the following is likely to be the most price inelastic? a. Airline tickets b. Bus tickets c. Taxi rides d. Transportation
D
Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable television in Small Town? a. 0.66 b. 0.75 c. 1.0 d. 1.4 e. 2.0
D
Which of the following would cause a demand curve for a good to be price inelastic? a. There are a great number of substitutes for the good b. The good is inferior c. The good is a luxury d. The good is necessity
D
When the quantity demanded or supplied responds substantially to a change in one of its determinants.
Elastic
A measure of the responsiveness of the quantity demanded or quantity supplied to a change in one of its determinants
Elasticity
An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers
F
If a demand curve is linear, the price elasticity of demand is constant along it
F
If the cross-price elasticity of demand between two goods is positive, the goods are likely to be complements
F
If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price inelastic
F
The demand for a necessity such as insulin tends to be elastic
F
The demand for aspirin this month should be more elastic than the demand for aspirin this year
F
The price elasticity of demand is defined as the percentage change in the price of that good divided by the percentage change in quantity demanded of that good
F
A measure of how much the quantity demanded of a good responds to a change in consumers' income
Income Elasticity of Demand
When the quantity demanded or supplied responds only slightly to a change in one of its determinants
Inelastic
Is the price elasticity of supply for fresh fish likely to be elastic or inelastic when measured over the time period of one day? Why?
Inelastic (nearly vertical), because once the fish are caught, the quantity offered for sale is fixed and must be sold before it spoils, regardless of the price.
A good characterized by negative income elasticity
Inferior Good
If the price of Pepsi increases by one cent and this induces you to stop buying Pepsi altogether and switch to Coca-Cola, what is your price elasticity of demand for Pepsi, and is it considered elastic or inelastic?
Infinite, therefore it is considered perfectly elastic.
A good characterized by positive income elasticity
Normal Good
A measure of how much the quantity demanded of a good responds to a change in the price of that good
Price Elasticity of Demand
A measure of how much the quantity supplied of a good responds to a change in the price of that good
Price Elasticity of Supply
If the demand for a good is price inelastic, an increase in its price will increase total revenue in the market
T
If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good
T
If the price elasticity of supply for blue jeans is 1.3, an increase of 10 percent in the price of blue jeans would increase the quantity supplied of blue jeans by 13 percent
T
The demand for tires should be more inelastic than the demand for Goodyear brand tires
T
The income elasticity of demand for luxury items, such as diamonds tends to be large (greater than 1).
T
The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity
T
The supply of automobiles for this week is likely to be more price inelastic than the supply of automobiles for this year
T
Using the midpoint method to calculate elasticity, if an increase in the price of pencils from 10 cents to 20 cents reduces the quantity demanded from 1,000 pencils to 500 pencils, then the demand for pencils is unit price elastic
T
The amount paid by buyers and received by sellers of a good computed as P x Q
Total Revenue
If the price of soda doubles from $1.00 per can to $2.00 per can and you buy the same amount, what is your price elasticity of demand for soda, and is it considered elastic or inelastic?
Zero, therefore it is considered perfectly inelastic.
Suppose a firm is operating at half capacity. Is its supply curve for output likely to be relatively elastic or inelastic? Why?
elastic, because a small increase in price will induce the firm to increase production by a large amount.
If demand is inelastic, will an increase in price raise or lower total revenue? Why?
it will increase total revenue because a large increase in price will be accompanied by only a small reduction in the quantity demanded if the demand is inelastic.
If a demand curve is linear, is the elasticity constant along the demand curve? Which part tends to be elastic and which part tends to be inelastic? Why?
no. the upper part tends to be elastic while the lower part tends to be inelastic. this is because on the upper part, for example, a one-unit change in the price is a small percentage change while a one-unit change in quantity is a large percentage change. this effect is reversed on the lower part of he demand curve.
What are the four major determinants of the price elasticity of demand?
whether the good is a necessity or a luxury, the availability of close substitutes, the definition of the market, and the time horizon over which the demand is measured.