Economy Chapter 19 Study Guide
In the long run, the supply curve
Is more elastic than it is in the short run
The demand curve for petroleum should be
More elastic in the long run than in the short run
Suppose that when the price of good X changes, the quantity of good Y demanded remains the same. The cross price elasticity of demand is
Zero
The income elasticity of demand for all goods taken together must be
+1
Suppose that when the price of a soft drink rises 10%, the quantity demanded of the soft drink falls 5%. Based on this information, what is the approximate absolute price elasticity of demand for soft drink?
0.5
Changes in technology over time will result in
A more elastic supply curve
When demand is elastic
A proportionately small change in price leads to a proportionately large change in quantity demanded
The price elasticity of demand is
Always negative, buy by convention, economists typically express the price elasticity of demand as an absolute value
Which of the following statements about demand and price elasticity of demand is TRUE
As the demand curve has a negative slope, the price elasticity of demand is negative
The income elasticity of demand
Can be positive, negative, or zero.
If the cross price elasticity of demand between two goods is negative, then the two goods are
Complements
Suppose that the cross price elasticity of demand between bagels and cream cheese is -1.45. This indicates that the two goods are
Complements
An decrease in total revenue will result if
Demand is inelastic and price decreases
An increase in total revenue will result if
Demand is inelastic and price increases
Total revenues reach a maximum when
Demand is unit-elastic
When quantity supplied is very responsive to a change in price, supply is
Elastic
Which of the following goods is most likely to have the lowest price elasticity
Gasoline
A perfectly elastic demand curve is
Horizontal
A consumer is willing and able to buy 1,000 units of a good at $10, but the consumer's quantity demanded falls to zero if the price rises even a fraction of a cent. The consumer's demand curve is
Horizontal and is perfectly elastic
The difference between price elasticity of demand and income elasticity of demand is that
Income elasticity refers to a horizontal shift of the demand curve while price elasticity demand refers to a movement along the demand curve
When demand is perfectly inelastic, an increase in price will
Increase total revenue
If the price of a god increases and the total revenue also increases, the good has a(n)
Inelastic demand
If the price of a good increases and the total revenue also increases, the good has a(n)
Inelastic demand
A good's price elasticity of demand can be calculated by using the formula of
Percentage change in quantity demanded divided by percentage change in price.
A demand relationship that is a vertical line up from the quantity axis is
Perfectly inelastic
If the quantity demanded of a product is the same for each possible price, demand is
Perfectly inelastic
If the quantity supplied stays the same no matter what the price is, then supply is
Perfectly inelastic
If there is no response in quantity demanded to a change in price, demand is
Perfectly inelastic
For most goods and services the income elasticity of demand is
Positive
Which of the following is FALSE regarding inelastic demand?
Price elasticity of demand is greater than 1(Ep > 1)
When demand is inelastic,
Quantity demanded is not very responsive to a change in price
When demand is elastic,
Quantity demanded is very responsive to a change in price
Suppose the absolute price elasticity of demand for newsletter subscriptions is 1.3. In order to increase the total revenues from subscriptions, the publishers should
Reduce the price of the newsletter
A perfectly elastic demand curve
Shows that a slight increase in price will reduce quantity demanded to zero.
If the cross price elasticity of demand between two goods is positive, then the two goods are
Subsitutes
A positive cross price elasticity of demand between two goods suggests that the goods are
Substitutes
If the cross price elasticity of demand between Los Angeles Lakers professional basketball tickets and Los Angeles Dodgers professional baseball tickets is positive, then the two goods are
Substitutes
Elastic demand implies
That a one percent increase in price results in a larger than one percent decrease in quantity demanded
Inelastic demand implies
That a one percent increases in price results in a smaller than one percent decreases in quantity demanded
The price elasticity of demand measures
The consumers' sensitivity to a price change
Which of the following would NOT affect a good's price elasticity of demand?
The cost of producing the good
If demand is perfectly elastic everywhere along the demand curve, then
The demand curve is horizontal
The income elasticity of demand is
The percentage change in demand divided by the percentage change in income
The price elasticity of demand shows
The proportionate amount by which the quantity demanded changes in response to a proportionate change in price
The price elasticity of supply measures
The responsiveness of quantity supplied to a change in price
The price elasticity of demand is a measure of
The responsiveness of the quantity demanded of a good to changes in the price of the good
If demand is unit-elastic throughout the demand curve, then total revenues are
The same for any price the firm changes
Other things being equal, demand is less elastic
The smaller the percentage of a total budget that a family spends on a good
The most important determinant of the elasticity of supply is
The time period firms have to adjust to the new price
The demand for diet soft drinks (as a group) is relatively inelastic because
There are few substitutes
When two goods are substitutes for each other, the cross price elasticity of demand
Will be positive
An increase in total revenue will result if
demand is elastic and price decreases
A measure of the responsiveness of demand to changes in income, all other things being constant, is
income elasticity of demand
We generally expect the price elasticity of supply to be
positive
The price elasticity of demand would most likely be the lowest for
salt
The price elasticity of demand along a vertical demand curve is
zero
