econ ch5

when demand is perfectly inelastic, the price elasticity of demand

is zero, and the demand curve is vertical.

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

0.67.

The supply of a good will be more elastic, the

longer the time period being considered.

If a 20% change in price results in a 15% change in quantity supplied, then the price elasticity of supply is about

0.75, and supply is inelastic.

Suppose that an increase in the price of melons from $1.30 to $1.80 per pound increases the quantity of melons that melon farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what is the approximate value of the price elasticity of supply?

0.89

For which of the following types of goods would the income elasticity of demand be positive and relatively large? goods for which there are many complements

luxuries

Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is

1.22, and basketball tickets are a normal good.

Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $4 and $6?

1.25

a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about

1.33, and supply is elastic.

A candle manufacturer produces 4,000 units when the market price is $11 per unit and produces 6,000 units when the market price is $13 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.4.

Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about

3.17, and Tess regards handbags as normal goods.

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a

3.6 percent increase in the quantity demanded.

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

4

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

40 percent decrease in the quantity demanded.

goods with many close substitutes tend to have

more elastic demands.

Refer to Figure 5-5. Using the midpoint method, demand is unit elastic between prices of

$40 and $60.

Suppose the price of potato chips decreases from $1.45 to $1.25 and, as a result, the quantity of potato chips demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for potato chips in the given price range is

0.64.

refer to Figure 5-3. The demand curve representing the demand for a luxury good with several close substitutes is

C.

Cross-price elasticity is used to determine whether goods are inferior or normal goods.

False

Refer to Figure 5-19. Which of the following statements is correct?

Supply curve C is more inelastic than supply curve D.

Which of the following statements is valid when supply is perfectly elastic at a price of $4?

The elasticity of supply approaches infinity.

If the price of calculators increases by 15% and the quantity demanded per week falls by 45% as a result, then the price elasticity of demand is 3.

True

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

True

When demand is elastic, an increase in price will cause

a decrease in total revenue.

ou and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would

be positive, and your roommate's would be negative.

If demand is price inelastic, then

buyers do not respond much to a change in price.

Which of the following is likely to have the most price inelastic demand?

cookies

Refer to Figure 5-1. Between point A and point B on the graph, demand is

elastic, but not perfectly elastic.

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

income elasticity of demand is negative.

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers

Refer to Figure 5-9. If the price falls from point A to point B, total revenue

increases, and demand is price elastic.

Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

inelastic.

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be

inelastic.

holding all other forces constant, if increasing the price of a good leads to an increase in total revenue, then the demand for the good must be

inelastic.

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct?

operation Methbust would reduce the supply of meth; Operation Say No would reduce the demand for meth.

For which pairs of goods is the cross-price elasticity most likely to be negative?

peanut butter and jelly

Whether a good is a luxury or necessity depends on the

preferences of the buyer.

Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

steeper the demand curve will be.

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes

A key determinant of the price elasticity of supply is the

time horizon.