ch3 Quantitative Demand Analysis
What is true of demand for a good that has few close substitutes?
Demand is relatively inelastic.
Cross advertising elasticity measures
changes in consumption of one good due to changes in advertising on another good.
Total Revenue test
if the demand is elastic, an increase in price will lead to a decrease in TL revenue. If demand is inelastic, and increase in price will lead to an increase in TL revenue. Finally TL revenue is maximized at the point where demand is unitary elastic
Suppose elasticity is given by, EX,Y = %ΔX/%ΔY. The absolute value of elasticity will be ________ 1 when the change in X is small relative to the change in Y.
less than
Total revenue is maximized when marginal revenue equals___ which is when the own price elasticity of demand is equal to ____
0; -1
Suppose a firm produces two products, X and Y. The firm earns revenues from X equal to $50,000 and revenues from Y equal to $30,000. The own price elasticity of demand for X is -2 and the cross-price elasticity of demand between X and Y is -0.6. If the firm lowers the price of product X by 1%, the change in total revenues will be $
680
Consider the following relationship between marginal revenue and elasticity of demand: MR = P × {1+EE}/+EE. If demand is elastic:
Marginal revenue is positive.
If demand is perfectly elastic, which of the following is correct?
Own-price elasticity is infinite in absolute value.
Which of the following are considered expressions for income elasticity?
Q/M * M/Q %ΔQxd%ΔM
elasticity
a measure of the responsiveness of one variable to changes in another variable; the percentage change in one variable that arises due to a given percentage change in another variable
If elasticity is given by, EX,Y = %ΔX/%ΔY, then elasticity is negative when:
a decrease in Y produces an increase in X. an increase in Y produces a decrease in X.
income elasticity
a measure of responsiveness of the demand for a good to changes in consumer income; the percentage change in quantity demanded divided by the percentage change in income
cross-price elasticity
a measure of the responsiveness of the demand for a good to changes in the price of a related good; the percentage change in the quantity demanded of one good divided by the percentage change in the price of a related good
unitary elastic
absolute value of the own price elasticity is equal to 1
If elasticity is given by, EX,Y = %ΔX/%ΔY, then elasticity is positive when:
an increase in Y leads to an increase in X. a decrease in Y leads to a decrease in X.
What is true of demand for a good that has many available substitutes?
demand is relatively elastic
If EQ, Px=∞, then demand is said to be perfectly _____.
elastic
elastic
the absolute value of the own price elasticity is greater than 1
Suppose a firm produces two products, X and Y. The firm earns revenues from X equal to $70,000 and revenues from Y equal to $60,000. The own price elasticity of demand for X is -1.5 and the cross-price elasticity of demand between X and Y is -0.80. If the firm decreases the price of product X by 1%, the change in total revenues will be
830
own price elasticity of demand
A measure of the responsiveness of the quantity demanded of a good to a change in the price of that good; the percentage change in quantity demanded divided by the percentage change in the price of the good.
Suppose as a result of a 5% increase in the price of pizza, the demand for soft drinks decreases by 1.1%. In this example, soft drinks and pizza are _____
complements
Demand tends to be ___________ elastic for goods that require a relatively small portion of consumers' budgets and ____________ elastic for goods that require a relatively large portion of consumers' budgets.
less; more
Consider the following relationship between marginal revenue and elasticity of demand: MR = P × {1+EE}/E. If demand is unitary elastic:
marginal revenue equals zero
If EQ,Px= 1, total revenue is _____.
maximized
Demand tends to be ___________ elastic when consumers have more time to react to price changes.
more
If income elasticity of good X is positive, (EQx, M > 0), then good X is considered a(n)
normal good
inelastic
the absolute value of the own price elasticity is less than 1
When consumers have more time to react to a price change of a good,
the consumers are able to locate more substitutes. the demand for the good becomes relatively more elastic.
What can be said about goods X and Y if the cross-price elasticity between X and Y is negative?
they are complements
What can be said about goods X and Y if the cross-price elasticity between X and Y is positive?
they are substitutes
True or false: A new car is likely to have a more elastic demand than paper clips.
true
