Econ chapter 6
income elasticity is > 0 and > 1
normal good and a luxury
income elasticity >. 0 and < 1
normal good and a necessity
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:
-1.25
Suppose the value of the price elasticity of demand is minus−3. What does this mean?
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
If the income elasticity of SUVs is greater than 1, what is the good considered?
A luxury
The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?
An inferior good
Which of the following is true of a good with a perfectly elastic demand?
Even the smallest increase in the price of the good will cause consumers to stop consuming it completely.
Which of the following statements correctly identifies the difference between the crossminus−price elasticity of demand and the income elasticity of demand?
The income elasticity of demand for a good is independent of the price changes of related goods, whereas the crossminus−price elasticity of demand for a good is independent of the income changes of the consumer.
Which of the following statements is true of the price elasticity of demand?
The price elasticity of demand for a good is generally higher in the long run than in the short run.
An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.
an increase positive
Suppose the San Francisco 49ers lower ticket prices by 15 percent and as a result the quantity of tickets demanded increases by 10 percent. This set of results shows that San Francisco 49ers tickets have
an inelastic demand.
the % change in the quantity demanded of one good divided by the % change in the price of another good
cross-price elasticity of demand
when demand is inelastic lowering price _____________ total revenue
decreases
E > 1, sensitive to price change
elastic
If a good has many close substitutes, then its demand is most likely
elastic
When the percentage change in the quantity demanded exceeds the percentage change in price, then demand is
elastic.
cross price elasticity of demand < 0
goods are complements
cross price elasticity of demand > 0
goods are substitutes
cross-price elasticity of demand = 0
goods are unrelated
A good is said to have a relatively elastic demand if the absolute value of the price elasticity of demand for the good is ________.
greater than 1
Sofia is selling homemade cakes. The demand for homemade cakes is elastic. If Sofia reduces the price of her cakes, ________.
her revenue will increase
Price elasticity of demand measures
how responsive quantity demanded is to a change in price.
%. change in the quantity demanded by the %. change in income
income elasticity
If the price elasticity of demand for razors is negative 0.74, the demand for razors is
inelastic
income elasticity is < 0
inferior good
Along a linear demand curve, the slope __________ while the price elasticity of demand __________.
is constant, changes from one point to another
In case of a downwardminus−sloping, linear demand curve, the price elasticity of demand for a good ________.
is different at different points on the curve
A perfectly elastic demand curve ________.
is parallel to the quantity axis
If the price elasticity of demand for canned soup is estimated at negative 3.63−3.63. What happens to total revenue when the price of canned soup increases?
it falls
if two demand curves intersect, the steeper demand curve is relatively
less elastic
steeper means
less elastic
Which of the following pairs of goods is likely to have a negative crossminus−price elasticity?
pens and paper notes
If the value of the price elasticity of demand for a good is equal to negative infinity, the good has a ________ demand.
perfectly elastic
a horizontal demand curve
perfectly elastic
a vertical demand curve is
perfectly inelastic
% change in quantity supplied / % change in price
price elasticity of supply
the responsivness of the quantity supplied to a change in price
price elasticity of supply
if price elasticity of supply equals zero
supply is perfectly inelastic
The negative value of the price elasticity of demand for a good can be attributed to ________.
the Law of Demand
The demand for a good is relatively elastic if the responsiveness of consumers to a change in the price of ________.
the good is high
When demand is price elastic, a fall in price causes total revenue to rise because
the increase in quantity sold is large enough to offset the lower price.
If prices rise the quantity supplied will be greater:
the longer time that elapses
the flatter the demand curve
the more elastic
The demand for a good is elastic. This means that if there is a 10% change in price of this good, ________.
the quantity demanded will change more than 10%
If we ignore the negative or positive sign, the midpoint method of calculating a percentage change in price between two points on a demand curve results in
the same percentage, regardless of whether the price increases or decreases.
P x Q, product of price per unit times number of units sold
total revenue
E = 1
unit price elastic
Perfectly inelastic demand means that consumers
will buy a certain quantity, regardless of price
What is the cross-price elasticity of demand for two goods that are unrelated?
zero
As the number of substitutes available for a good increases, the price elasticity of demand for the good ________.
increases
E< 1, not sensitive to price change
inelastic
