Chapter 5 MICRO

If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good.

True

In general, a flatter demand curve is more likely to be

**price elastic. price inelastic. unit price elastic. none of the above.

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

**reduce total revenue to farmers as a whole because the demand for food is inelastic. reduce total revenue to farmers as a whole because the demand for food is elastic. increase total revenue to farmers as a whole because the demand for food is inelastic. increase total revenue to farmers as a whole because the demand for food is elastic.

If a supply curve for a good is price elastic, then

**the quantity supplied is sensitive to changes in the price of that good. the quantity supplied is insensitive to changes in the price of that good. the quantity demanded is sensitive to changes in the price of that good. the quantity demanded is insensitive to changes in the price of that good. none of the above.

Use the following information to answer questions 16 and 17. Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000.

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Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable television in Small Town?

0.66 0.75 1.0 **1.4 2.0

If a demand curve is linear, the price elasticity of demand is constant along it.

False; demand will be price elastic in its upper portion and price inelastic in its lower portion.

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.

False; demand would be price elastic.

The demand for a necessity such as insulin tends to be elastic.

False; the demand for necessities tends to be inelastic.

The demand for aspirin this month should be more elastic than the demand for aspirin this year.

False; the longer the time period considered, the more price elastic the demand curve because consumers have an opportunity to substitute or change their behavior.

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.

False; the price elasticity of demand is defined as the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.

If the cross-price elasticity of demand between two goods is positive, the goods are likely to be complements.

False; the two goods are likely to be substitutes.

If the demand for a good is price inelastic, an increase in its price will increase total revenue in that market.

True

Which of the following would cause a demand curve for a good to be price inelastic?

There are a great number of substitutes for the good. The good is inferior. The good is a luxury. **The good is a necessity.

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.

True

The demand for tires should be more inelastic than the demand for Goodyear brand tires.

True

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.

True

If the income elasticity of demand for a good is negative, it must be

a luxury good. a normal good. **an inferior good. an elastic good.

The demand for which of the following is likely to be the most price inelastic?

airline tickets bus tickets taxi rides **transportation

If demand is linear (a straight line), then price elasticity of demand is

constant along the demand curve. inelastic in the upper portion and elastic in the lower portion. **elastic in the upper portion and inelastic in the lower portion. elastic throughout. inelastic throughout.

At which of the following prices does Small Town Cablevision earn the greatest total revenue?

either $30 or $40 per month because the price elasticity of demand is 1.0 **$30 per month $40 per month $0 per month

If the cross-price elasticity between two goods is negative, the two goods are likely to be

luxuries. necessities. **complements. substitutes.

In general, a steeper supply curve is more likely to be

price elastic. **price inelastic. unit price elastic. none of the above.

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

price inelastic. **price elastic. unit price elastic. income inelastic. income elastic.

If an increase in the price of a good has no impact on the total revenue in that market, demand must be

price inelastic. price elastic. **unit price elastic. all of the above.

If consumers think that there are very few substitutes for a good, then

supply would tend to be price elastic. supply would tend to be price inelastic. demand would tend to be price elastic. **demand would tend to be price inelastic. none of the above is true.

The price elasticity of demand is defined as

the percentage change in price of a good divided by the percentage change in the quantity demanded of that good. the percentage change in income divided by the percentage change in the quantity demanded. **the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good. the percentage change in the quantity demanded divided by the percentage change in income. none of the above.

If supply is price inelastic, the value of the price elasticity of supply must be

zero. **less than 1. greater than 1. infinite. none of the above.