exam 2 ch 6

Ariel always spends 20% of her income on gizmos. Assume that her income increases by some percentage while the price of gizmos remains constant (and that all gizmos cost the same). What is her income elasticity of demand for gizmos?

1

Last week, Michelle spent $30 on caviar. Today, Michelle still spends $30 on caviar even though its price has doubled. What is Michelle\'s price elasticity of demand for caviar? (Use the midpoint formula for your calculation.)

1

If Good C increases in price by 50% a pound, and this causes the quantity demanded for Good D to increase by 60%, what is the cross-price elasticity of the two goods? What is the relationship between the two goods?

1.2 substitutes

Becky only eats out at Macaroni Grill and eats out 3 times per month. She receives a raise from $31,900 to $33,500 and decides to eat out 5 times per month. Use the midpoint method to calculate the monthly income elasticity of demand for eating out. This good is

10.2 units a normal good and income-elastic

Sylvia\'s annual salary increases from $100,000 to $109,500. Sylvia decides to increase the number of vacations she takes from 3 to 4. Use the midpoint method to calculate her income elasticity of demand for vacations. this good is

3.15 units a normal good and income-elastic

In anticipation of a major hurricane hitting the Gulf Coast, the quantity gasoline of sales rise from 360 million gallons to 375 million gallons. Based on this information, what is the percent change in gasoline sales? Please specify your answer to one decimal place and use the midpoint formula.

4.08%

Consider two markets. The initial equilibrium for both markets is the same, P = $5.50, and Q = 33.0. When the price is $6.75, the quantity supplied of cat food is 71.0 and the quantity supplied of snake oil is 111.00. The demand for both goods is the same (for simplicity of analysis). Use this information to answer the questions below: Using the midpoint formula, calculate the elasticity of supply for snake oil? Please round to two decimal places. Supply in the market for cat food is:

5.31 less elastic than supply in the market for snake oil

Below is a demand curve for DVDs for a monopoly currently producing at point b. Specify answers to the nearest dollar, and use a negative sign to indicate decreases in revenue. A) If the firm lowers DVD prices from $16 to $14, what is the change in revenue assuming quantity remains the same? In other words, focus only on the price effect. B) What is the change in revenue that results just from the increased quantity at $14? In other words, focus only on the quantity effect. C) What is the overall net effect of this price decrease on the firm\'s total revenue? D) What is the price elasticity of demand here?

A) $-400 B) 1400 C) 1000 D) Elastic

Label the following scenarios as examples of elastic, inelastic, or unit elastic demand. A) When Ruko, a device used to stream movies at home, increases prices by 57% total revenue decreases by 67%. B) When Cinema Supreme decreases ticket prices by 33%, total revenue does not change. C) When BlueBox, a DVD rental kiosk, increases its prices by 44%, total revenue increases by 25%.

A) Elastic B) Unit-Elastic C) Inelastic

Label the following hypothetical demand scenarios. Use the midpoint method. A) Contain Yourself!, a plastic container company, raises the price of its signature \"lunchbox\" container from $3.00 to $4.00. As a result, the quantity sold drops from 20,000 to 15,000. B) Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5. C) CapCityMetro decides to increase bus fare rates from $2.00 to $2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

A) Unit elastic B) Inelastic C) Elastic

A) Marcel Duchamps was a famous artist prior to his death and known for his dada artwork including works such as \"Soft Toilet.\" All the original sculptures and paintings made during his lifetime go on sale. B) Paul owns a Tim Horton\'s, a famous donut and coffee franchise. He is willing to sell as many maple glazed donuts as customers want at a price of $1.00 each, but he refuses to sell any donuts for any price lower than $1.00. C) The price of facial tissues rises from $2.85 per box to $3.15. As a result, P&G increases production from 15 million boxes to 25 million boxes of facial tissue. D) With the school semester starting for both high school and college, Papermate chooses to increase production of pens from 38 million to 42 million after global prices of writing instruments increase from $1.90 a package to $2.10 a package. E) Bright Ideas increase its production of light bulbs by 15% after a 400% increase in the price of fluorescent bulbs.

A) perfectly inelastic supply B) perfectly elastic supply C) elastic supply D) unit-elastic supply E) inelastic supply

A) a swifter floor sweeper and a broom would have a positive cross price elasticity of demand B) when supply is perfectly inelastic, a change in demand has no effect on the price C) the short run elasticity of supply is larger than the long run elasticity of supply because changes in equilibrium will adjust elasticity accordingly D) when the price increases, total revenue always increases because of the price effect: producers receive a higher price for the good E) a key consideration as to whether the price elasticity of supply is elastic or inelastic is whether the good supplied is a luxury item

A) true B) false C) false D) false E) false

For each scenario, calculate the cross-price elasticity between the two goods and identify how the goods are related. Please use the midpoint method when applicable, and specify answers to one decimal place. A) A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B. B) Product C increases in price from $5 a pound to $11 a pound. This causes the quantity demanded for product D to increase from 10 units to 18 units. C) When the price of Product E decreases 9%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 12%.

cross price elasticity ---- relationship A) 0 ---- no relationship B) .8 ---- substitutes C) -1.3 ---- complements

For each calculation, use the midpoint formula. Round your answers to the nearest hundredth. A) Sylvia\'s annual salary increases from $100,500 to $109,500, and she decides to increase the number of vacations she takes per year from 3 to 4. Calculate her income elasticity of demand for vacations. B) Blake eats two bags of generic potato chips each day, not buying any name brand chips. Blake\'s hourly wage increases from $8.75 to $15, and he decides to eat one name brand bag and one generic brand each day. Calculate Blake\'s income elasticity of demand for generic potato chips. C) Becky eats out at Macaroni Grill 3 times per year. She receives a raise from $31,000 to $33,500 and decides to eat out at Macaroni Grill 5 times per year. Calculate her income elasticity of demand for eating at Macaroni Grill. D) Lauren\'s salary decreases from $34,000 to $30,000. She decides to reduce the number of outfits she purchases each year from 20 to 19. Calculate her income elasticity of demand for new outfits.

income elasticity of demand ---- normal or inferior good ---- income elastic or inelastic or N/A A) 3.33 ---- normal good ---- income elastic B) -1.27 ---- inferior good ---- N/A C) 6.45 ---- normal good ---- income elastic D) .41 ---- normal good ---- income inelastic

The graph below depicts five demand curves. Please rank each curve in terms of elasticity (where a curve that is more elastic than another curve for any given quantity can be considered more elastic).

more elastic A C B D E least elastic

Over longer periods of time demand tends to become ____________ The fewer the substitutes the ___________ demand.

more elastic less elastic

The following table lists two goods along with their cross-price elasticities, where the percentage change in quantity is measured for Good 1 and the percentage change in price is for Good 2. Identify the relationship between the two goods.

relationship: complements substitutes complements substitutes substitutes

If when the price of Product E decreases by 9%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase by 12%, what is the cross-price elasticity of demand? What is the relationship between these goods?

-1.3 complements

Blake eats two bags of potato chips each day. Blake\'s hourly wage increases from $7 to $15, and he decides to stop eating generic chips and instead eats a name brand potato chip. Use the midpoint method to calculate Blake\'s income elasticity of demand for generic potato chips. the good is

-2.75 units an inferior group

If a 35% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B, what is the cross-price elasticity of these goods? What is the relationship between these goods?

0 no relationship