Chapter 5
The price of gas doubles. At 1st many people still purchase the same amount of gas. Eventually people start making other choices like carpooling and telecommute in which in turn leads to a decrease in their consumption of gasoline. This is an example which of the determinants of the elasticity?
Time period
A Susan's income increases by 20% and as a result she buys 40% more lattes then
Income elasticity of demand for lattes is 0.5
If grapefruits have a price elasticity of 4, that means that for every 1% decrease in price, the quantity demanded will
Increase by 4%
Assume a good is considered elastic. If the price of the good decreases then the total revenue
Increases
If a 30% change in the price of paper least 2 of 15% change in the quantity demanded pricey last disagree of demand for paper is considered
Inelastic
Indifference curves show
Combinations of 2 goods that gives a customer the same level of satisfaction
If the cross elasticities of demand for 2 good these negative that means that they are
Complimentary goods
When the price of product a rises the quantity of product b decreases product a and B are
Compliments
Indifference curves are
Concave to the origin, they do not intersect, they have negative slopes
Whether two goods are substitutes or complements can be determined by computing the
Cross elasticity of demand
The primary determinant of the elasticity of supply is
time
A firm increases its price for a good and total revenues increase. from this we can conclude that its demand
(not price elastic)
For a certain good when price rises from $50 to $55 quantity demanded falls from 8400 to 7500. The price elasticitiy of demand here is ___ making the demand for this good ___ in the price range between $50 and $55.
1.19 ; elastic (8400-7500)/[(8500+7950)/2]
If the price rises from $2 to $3 and the quantity demanded falls from 500 units to 300 units, the price elasticity of demand using the midpoint method is
1.25
If the price of copy paper increases from $2 to $3 what is the percentage change in price ?
50%
Which of these would result in a higher price elasticity ?
A longer time period
Which product is likely to have a lower elasticities of demand ?
A pack of gum
If the cross elasticity of demand for good A with respect to good B is 2.3, then good A is a
Substitute for good B
Text burdens are higher on consumers when
Demand is inelastic and supply is elastic
As a consumer moves downward to the right on and indifference curve choosing more of one good he is willing to give up less of the other good because of
Diminishing marginal utility
The reason economists use the midpoint method to compute elasticity is that
Economists want the elasticity to be the same whether the price is increasing or decreasing
If a product's price rises by 6% in its quantity demanded falls by 8% then we can say that demand for this product is
Elastic
The greater the percentage of the budget spent on a good, the
Higher is the elasticity of demand
Which of the following products would have the highest price elasticity of demand
Hot dog sold by a street vendor
What happens to price elasticities on a linear demand curve when the price increases above the unitary elasticity point ?
It becomes more elastic
Assume that a farm is selling his product at the prize that corresponds to the midpoint of its demand curve if the firm increases the price of its product what will happen to total revenue
It will decrease
If the price of apples causes quantity demanded to fall on the elastic portion of the demand curve what will an increase in price do to total revenue
It will fall
Assume that the demand for taxis services is inelastic. At the price of taxi services increases what will happen to total Revenue ?
It will increase
Which of the following products approximate it we has the highest price elasticity of demand ?
Leisure air travel
If hot dogs and relish are compliments, their cross elasticity of demand is
Less than 0
The ___ is a period of time long enough for firms to alter their plant capacities and for the number of firms in the industry to change
Long run
In general the flatter the supply curve is the
More elastic is supply
If soda and potato chips are compliments, then their cross elasticity of demand is
Negative
Compliments are defined as having a
Negative cross price elasticity of demand
A vertical demand curve represents demand that is
Perfectly inelastic
Knowing a product's price elasticity allows economist to
Predict the amount by which quantity demand it will change in response to a change in price
All other things remaining equal the more elastic demand is the higher the incidence of taxation on
Producers
All other things remaining equal the more inelastic demand is the lower the incidence of taxation on
Producers
Most income taxes are
Progressive
A tax that rises in percentage of income as income increases is a
Progressive tax
What will happen to the quantity demanded of a perfectly in elastic product when it's price increases by 5% ?
Quantity demanded will stay the same
A tax in which the percentage of income in tax paid rises as income falls is known as a
Regressive tax
When the increase in price for a new video game is 10% the increase in quantity supplied of that new video game is 60% what is the price elasticities of supply for that video Game ?
Six
In the figure below which supply a curve is most likely to represent the short run ?
Supply tends to be more elastic in the short run. The steeper the curve the more inelastic the supply
___ Refers to who bears the economic burden of a tax
The incidence of taxation
In general the smaller the percent of household income spent on a product
The lower the elasticity of demand
A firm will maximize total revenue it it sells its product at a price that corresponds to
The midpoint of the demand curve
Assume that demand for gasoline is inelastic. If a gas station increases the price of its gasoline what will happen to total revenue from gasoline sales ?
Total revenue Will increase
If the percentage change in quantity demanded is equal to the percentage change and price, then demand is
Unitary elastic
Products with many close substitutes tend to have ___ demand in products considered to be luxury goods tend to have ___ demand
elastic; elastic
Stores often advertise one day only sales. This technique uses the short time period to make demand more
inelastic
Suppose your income falls from $35000 to $33000, and that your quantity demanded of a good increases from 40 units to 55 units the good is said to be an
inferior good
If the demand for quilted northern bath tissue is elastic then the
percentage change in quantity demanded is greater than the percentage change in price
A tax in which the percentage of income tax rises as income falls is known as a
regressive tax
Which of these is not a determinant of elasticity ?
sales tax rate placed on an item