micro ch 4
Firms are indifferent to changing prices when the price elasticity of demand is
unitary elastic
If a firm wishes to maximize its total revenue it should price its product where the price elasticity of demand is
unitary elastic
Lee says that he will always spend $20 a week on lattes. Lee's demand for lattes is price
unitary elastic
When can a firm lower prices and still increase revenue?
when the demand is elastic
If the percentage change in the quantity consumed of pizza is 6% and the percentage change in income is 2%, what is the income elasticity of demand for pizza?
+3
If the percentage change in quantity demanded of Good B is 2% and the percentage change in the price of Good A is -10%, what is the cross-price elasticity of demand?
-0.20
If the income elasticity of demand for noodles is -2 and the percentage change in the quantity consumed is 5%, what is the percentage change in income?
-2.5%
A shopping mall owner is given a list of income elasticity of demand values. Which one represents a necessity?
0.5
When the price of a sandwich increases from $2.50 to $2.75, the quantity demanded of lawn fertilizer is unchanged. The cross-price elasticity of demand between sandwiches and fertilizer is ________ because sandwiches and fertilizer are ________.
0; unrelated
When the price of an eraser increases from $1.50 to $2.50, the quantity demanded of pencils is unchanged. The cross-price elasticity of demand between erasers and pencils is ________ because erasers and pencils are ________.
0; unrelated
Firms supplying twisty-ties decrease the quantity supplied by 10% when the price decreases by 5%. The price elasticity of supply for twisty-ties is ________.
2.0
Demand for which of the following goods or services is likely to be the MOST elastic in warm weather?
a pair of Rainbow brand leather flip-flop beach sandals
The price elasticity of demand is
almost always negative
As price elasticity of supply becomes more elastic over time, the overall shape of the supply curve
becomes more horizontal.
As we move downward along the demand curve, the price elasticity of demand
becomes more inelastic
Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand?
coffee and cream
If the cross-price elasticity of demand is -3, Goods A and B are
complements
When two goods are unrelated then
cross-price elasticity of demand will be zero.
The price elasticity of supply is
the percentage change in the quantity supplied divided by the percentage change in price.
When the price elasticity of demand is - 0.36, a decrease in price will
decrease total revenue
When the price of softballs is high, a ________ in price will raise total revenue. When the price is low, the seller should ________ the price to increase total revenue
decrease; raise
When the price of softballs is high, a ________ in price will raise total revenue. When the price is low, the seller should ________ the price to increase total revenue.
decrease; raise
At higher prices, the price elasticity of demand is likely to be ________, whereas it is likely to be ________ at lower prices.
elastic; inelastic
When Leticia decreases her price of earrings from $17 to $15, she finds that her sales increase from 60 to 70. She faces ________ demand for her product, and this price change will ________ her total revenue.
elastic; raise
We would expect to see a positive cross-price elasticity between
ice cream and frozen yogurt
When would oil producers see the largest percentage decline in the quantity demanded for oil due to an increase in the price of oil today
in 15 years
The responsiveness of demand to changes in income while holding the good's relative price constant is the
income inelasticity of demand
When the total revenue and price both move in the same direction (are directly related), demand is
inelastic
When Kelsey decreases her price of lipstick from $7 to $5, she finds that her sales increase from 6 to 7. She faces ________ demand for her product, and this price change will ________ her total revenue.
inelastic; lower
If the income elasticity of demand is -2.2, the good will be a(n) ________ good
inferior
If the income elasticity of demand is -2.2, the good will be a(n) ________ good.
inferior
When the price elasticity of demand is elastic, a consumer
is relatively responsive to a change in price
When incomes fall by 20%, the quantity demanded of specialty baked goods falls by 40%. As a result, specialty baked goods are
luxuries
If the income elasticity of demand for electric cars is +1.3, you know that electric cars are a(n) ________.
luxury
If the income elasticity of demand for laptops is +2.5, you know that laptops are a(n) ________ good.
luxury
If the income elasticity of demand is +1.4, the good will be a(n) ________ good.
luxury
When Noelle received a promotion at work, her income rose by 30%. The income elasticity of demand for steak was found to be 1.5. For her, steak is a(n)
luxury good
A firm knows that Seneca's income elasticity of demand for hair ties is 5; for Janelle, it is 0.2. A firm can reason that a hair tie is a(n) ________ good for Seneca while it is a(n) ________ good for Janelle.
luxury; necessity
What good is most likely to have an income elasticity of demand equal to 0.3?
medication
Income elasticity of demand for pedicures is found to be 2.7. This service is a(n)
normal good and a luxury good
Which one of the following pairs of goods is likely to have a positive cross-price elasticity of demand?
pancakes and waffles
Mona says that she will always spend $7 a week on boba tea. Mona's demand for boba tea is
prefectly elastic
Use the following scenario to answer the next two questions.Dairy Wishes, a local ice cream store, finds that it sells out of ice cream sandwiches at the current price of $1. It raises the price to increase its revenues and finds that no one buys ice cream sandwiches anymore. The demand for ice cream sandwiches is
prefectly elastic
The local National Hockey League (NHL) team decides to lower its ticket prices to attract more fans and to increase its revenues from ticket sales. It is hoping that the
price elasticity of demand is relatively elastic.
The income elasticity of demand for a good measures the responsiveness of ________ to a change in ________.
quantity demanded; incom
Winged Treasures is a specialty store that sells butterfly ornaments. The owner wants to increase her total revenue and knows that the price elasticity of demand for her product is -0.4. What should she do to her price
raise it until the price elasricity of demand is equal to -10
Sky Breath Music is a specialty store that sells wind chimes. The owner wants to increase her total revenue and knows that the price elasticity of demand for her product is -0.4. What should she do to her price?
raise it until the price elasticity of demand is equal to -1.0
Winged Treasures is a specialty store that sells butterfly ornaments. The owner wants to increase her total revenue and knows that the price elasticity of demand for her product is -0.4. What should she do to her price?
raise it until the price elasticity of demand is equal to -1.0
While there are many pizza places in Kutztown, Pappy's Pizza is known for its distinctive deep-dish pizza with an almost pie-like crust, whereas Momma's Pizza is comparable to many other restaurants. Pappy's is likely to find that it can ________ prices to increase total revenue, and Momma's must ________ prices to increase total revenue.
raise; lower
If the price elasticity of supply is 1.5, we know that supply is
relatively elastic
The owner of a commercial orchard finds that he can easily switch between herbicides and mowing as a way of keeping weeds under control. Depending on the availability of herbicide and workers, he may use either method, or both. This ability to choose tends to make the price elasticity of the supply of fruit he produces
relatively elastic
When buyers are relatively responsive to a price change then we say the demand for that product is
relatively elastic
When the price of scooters drops by 5%, the quantity demanded changes by 7%. We know that the price elasticity of demand for scooters is
relatively elastic
Rielle's Custom Rugs produces custom-woven rugs that take approximately six months to make. The price elasticity of supply for these rugs in the short-term is
relatively inelastic
Consider the market for pencils. If the popularity of digital tablets and electronic pens increases and the price of pencils declines, then the change in the quantity demanded for pencils will be
relatively large
When Georgiou's Gyros prices its Greek gyros wraps at $6.00, it sells 75 per day. Georgiou's lowers the price to $5.50 and sells 100 per day. Georgiou's total revenue ________ because the price elasticity of demand for gyros is ________.
rose; elastic
If the cross-price elasticity of demand is 4, Goods A and B are
substitutes
Income elasticity of demand is defined as
the percentage change in quantity demanded divided by percentage change in income.
