Chapter 3

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the

cross-price elasticity

Assume that the price elasticity of demand is -2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to:

decrease

If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4 percent increase in the price of ketchup will lead to a 4.8 percent:

drop in quantity demanded of hamburgers

If apples have an own price elasticity of -1.2 we know the demand is:

elastic

Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000. What is the own price elasticity of demand?

-0.21

The demand for good X has been estimated by Qxd = 12 - 3Px + 4Py. Suppose that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity

-0.6

If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross-price elasticity of apple sauce and pork chops at a pork chop price of $6?

-0.86

Suppose the demand function is Qxd = 100 - 8Px + 6Py - M. If Px = $4, Py = $2, and M = $10, what is the cross-price elasticity of good x with respect to the price of good y?

0.17

If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is:

0.4

Suppose demand is given by Qxd = 50 - 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50. What is the advertising elasticity of demand for good x?

0.52

If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100, what is the absolute value of the own price elasticity at a price of $7?

1.75

If the income elasticity for lobster is 0.4, a 40 percent increase in income will lead to a:

16 percent increase in demand for lobster.

You are the manager of a popular shoe company. You know that the advertising elasticity of demand for your product is 0.15. How much will you have to increase advertising in order to increase demand by 10 percent?

66.7 percent

Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000. How much of good X is consumed?

950 units

Suppose demand is given by Qxd = 50 - 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50. What is the quantity demanded of good x?

96

You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly -0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter?

Buy 10.5 percent more peanut butter.

The own price elasticity of demand for apples is -1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

It will increase 6 percent

Which of the following factors would NOT affect the own price elasticity of a good?

Price of an input

Suppose the demand for good x is ln Qxd = 21 - 0.8 ln Px - 1.6 ln Py + 6.2 ln M + 0.4 ln Ax. Then we know good x is:

a normal good.

The demand curve for a good is horizontal when it is:

a perfectly elastic good

If the absolute value of the own price elasticity of steak is 0.4, a decrease in price will lead to

a reduction in total revenue

An income elasticity less than zero tells us that the good is:

an inferior good.

If the cross-price elasticity between goods A and B is negative, we know the goods are:

complements

Suppose the demand for good x is ln Qxd = 21 - 0.8 ln Px - 1.6 ln Py + 6.2 ln M + 0.4 ln Ax. Then we know goods x and y are:

complements

Lemonade, a good with many close substitutes, should have an own price elasticity that is:

relatively elastic

Demand is more inelastic in the short term because consumers:

have no time to find available substitutes

The elasticity that measures the responsiveness of consumer demand to changes in income is the:

income elasticity

As we move down along a linear demand curve, the price elasticity of demand becomes more

inelastic

Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000. Then good X has a demand which is:

inelastic

The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is:

inelastic

Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

infinite

We would expect the own price elasticity of demand for food to be:

less elastic than the demand for cereal

We would expect the demand for jeans to be:

more elastic than the demand for clothing

If the demand for a product is Qxd = 10 - ln Px, then product x is:

unitary elastic

A price elasticity of zero corresponds to a demand curve that is:

vertical