ECON 2100 - Ch. 5 HW

Unit-elasticity is when the price elasticity of demand is ______ to __. Unit elasticity describes the scenario where a change in the ____ of a product leads to proportional change in quantity demanded. ---------- If a 10% decrease in price leads to a 10% increase in quantity demanded, demand is unit-elastic.

equal to 1, price

Elastic demand occurs when the price elasticity of demand is ________ than __. Keeping in mind the above equation, demand is elastic when the percentage change in quantity demanded is ________ than the percentage change in price. Buyers are ____________ to _________ in _______ when demand is elastic.

greater than 1, greater, sensitive to changes in price

Over longer periods of time demand tends to become _____ __________. The fewer the substitutes, the ___ ____________ demand.

more elastic, less elastic

Shep goes to his favorite coffee shop every morning and always buys one large latte, no matter whether there is a special or not (e.g. half price Mondays). What is his price elasticity of demand for lattes? What kind of elasticity?

0, perfectly inelastic

In this case the monthly demand curve is steeper and the yearly demand curve is flatter. Elasticity determines the relationship between price changes and total revenue, linking pricing decisions with elasticity. Elastic demand results in an inverse relationship between price movements and total revenue. If demand is elastic a price increase causes total revenue to fall. Inelastic demand results in a direct relationship between price changes and total revenue changes. When demand is inelastic an increase in price will increase total revenue.

?

The greater availabilty of close substitutes of a good the better able consumers are to respond to a price change by altering their quantity demanded.

?

(New - Old / (New + Old / 2)) X 100

Midpoint method

a measure of the responsibilities of the quantity demanded of a good to a change in its price (how sensitive are we) (%∆Qd) / (%∆P)

Price elasticity of Demand

Determine which statement about the absolute value of the price elasticity of demand is correct. a) The price elasticity of demand for laundry detergent in general is likely to be greater than the price elasticity of demand for Gain laundry detergent. b) The price elasticity of demand for Gain laundry detergent is likely to be greater than the price elasticity of demand for laundry detergent in general. c) The price elasticity of demand for gasoline is greater than the price elasticity of demand for cereal because because more people eat cereal than use gasoline. d) The price elasticity of demand for gasoline is less than the price elasticity of demand for cereal because because more people eat cereal than use gasoline.

b

Penny is a consumer with a tight budget. The share of her budget spent on goods and services is significant in determining how well she is able to respond to price changes. Based on this criteria, for which of the following goods would you expect Penny\'s demand to be the most elastic. a) plastic wrap b) used car c) ipod d) package of printer paper

b

Suppose the cross elasticity of demand between Motrin and Tylenol is 2.73. What can you say about Motrin and Tylenol? a) they are luxury goods b) they are substitute goods c) they are complementary goods d) they are normal goods e) they are inferior goods

b

What does cross elasticity of demand measure? a) how responsive quantity demanded of one good is to changes in the quantity demanded of another b) how responsive the quantity demanded of one good is to changes in the price of another c) how responsive the price of one good is to changes in the aggregate price level d) how responsive the price of one good is to changes in the price of another

b

Which of the following is the best definition of the price elasticity of demand? a) the absolute value of the slope of the demand curve b) The ratio of the percent change in quantity demanded to the percent change in price. c) The ratio of the percent change in price to the percent change in quantity demanded. d) The ratio of the percent change in demand to the percent change in income.

b

What does income elasticity of demand measure? a) how responsive income is to changes in education levels b) how responsive price is to changes in quantity demanded c) how responsive quantity demanded is to changes in income d) how responsive quantity demanded is to changes in price

c

If income elasticity of demand for printer ink was 0.81, then you could say that printer ink is ______ . a) they are luxury goods b) they are substitute goods c) they are complementary goods d) they are normal goods e) they are inferior goods

d

When demand is inelastic, changes in price and total revenue are _______ _________, meaning a price increase will result in _______ total revenue, and vice versa. Demand for Patty's Putts is inelastic (because it is less than one) and she will therefore earn _____ revenue when she raises prices.

directly related, higher, more

elasticity tends to be ____________ over the long-run for non-durable goods

greater, non-durable goods

When demand is elastic, changes in price and total revenue are _________ __________, meaning a price increase will result in ______ total revenue, and vice versa. Demand for Betty's Bugers is elastic (because it is greater than one) and she will therefore earn more revenue when she _______ prices.

inversely related, lower, lowers

Inelastic demand occurs when the price of elasticity is ___ than __. This occurs when buyers are not very __________ to ________ in _______. ---------- Gasoline is an example of a good that has inelastic demand.

less than 1, sensitive to changes in price,

One determinant of price elasticity is the share of a consumer's budget the good requires. - Consumers are more____________ to price changes of goods that represent a larger portion of their budget because these price changes have the__________ impact on their ability to purchase all goods.

responsive, greatest

Elasticity measures the________________ of quantity demanded to changes in price. Due to the greater ability to find substitutes over______ periods of time, customers will be better able to substitute away from relatively more expensive goods by reducing their ________ _____________. Therefore demand tends to be _____ elastic over longer time periods than over shorter time periods. - The relative elasticity is reflected in the _____ of the demand curve: the relatively more elastic demand curve looks more like a ___________ line, and the less elastic demand curve more like a __________ line.

responsiveness, longer, quantity demanded, longer, shape, horizontal, vertical