Micro-Chapter 6
Suppose the price elasticity of supply for crude oil is 3. How much would price have to rise to increase production by 6 percent?
% change in supply/% change in price 6/3 2 2 percent
In the price-elasticity coefficient formula, the numerator being greater than the denominator indicates that demand is ______.
elastic
Supply is ______ if the price elasticity coefficient is greater than 1.
elastic
The fact that consumers are not always able to adjust immediately to price changes means that product demand is more ______ over time.
elastic
The price elasticity of supply is much more ______ in the long run than in the short run.
elastic
When demand is unit elastic, the percentage change in quantity demanded is ______ the percentage change in price.
equal to
If the price elasticity of demand is unit elastic, the change in price is ______ the change in quantity.
exactly offset by
True or false: A positive income elasticity coefficient designates an inferior good.
false
True or false: Income elasticity for farm products is greater than income elasticity for automobiles.
false
True or false: Products seen as essentials tend to have higher income-elasticity coefficients than products seen as luxuries.
false
True or false: Proponents of the legalization of illegal drugs believe that the overall demand for the drugs is far more elastic than is generally assumed.
false
True or false: The degree of substitutability of products (measured by the cross elasticity of demand coefficient) is not important to businesses and government.
false
If product demand is relatively elastic and the price is decreased, total revenue will ______.
increase or go up
The demand for a heart transplant would be considered price
inelastic
The main sources of gold price fluctuations are shifts in demand interacting with highly limited and ______ supply.
inelastic
The short-run demand for gasoline has been shown to be more price than long-run demand.
inelastic
What type of price elasticity of demand results from a relatively small percentage change in quantity demanded divided by a relatively larger percentage change in price?
inelastic
If a good has a negative income elasticity coefficient, then it is classified as a(n) ______ good.
inferior
If product demand is relatively elastic, what will be the effect on the total revenue if the price is increased?
it decreases
When a change in price does not cause a change in the quantity demanded, the price elasticity of demand is considered ______.
perfectly inelastic
A demand curve that runs parallel to the vertical axis indicates a(n) ______.
perfectly inelastic demand
The midpoint formula is used for calculating the ______ elasticity of demand.
price
When a product is unit elastic and the _____ increases, the total revenue will remain unchanged.
price
When a product is unit elastic and the increases, the total revenue will remain unchanged.
price
A product for which a small change in price leads to a large change in the amount purchased is considered ______.
relatively elastic
What type of price elasticity of demand occurs when there is a relatively large percentage change in quantity divided by a relatively smaller percentage change in price?
relatively elastic demand
If the quantity demanded changes only slightly in response to a significant change in price, the demand is said to be ______.
relatively inelastic
For policymakers to achieve the goal of higher total farm incomes, farm output must be ______.
restricted
An increase in production is reflected in somewhat more elastic supply in the ______,
short run
In the ______, a farmer would have time to cultivate a crop more intensively by applying more variable inputs, such as labor, fertilizer, and pesticides
short run
Demand is relatively more price inelastic toward the lower-right segment of the demand curve because the original reference price is ______.
small
Which of the following products would be price elastic based on their substitutability?
snickers candy bar
Which item, when purchased new, would have the lowest price elasticity of demand?
socks
With a unit elastic demand, when price changes, total revenue ______.
stays constant
If the cross-price elasticity of demand between two goods is positive, then the pair must be ______.
substitutes
For all down-sloping demand curves, the price elasticity of demand is more elastic ______.
toward the upper left
True or false: It is possible to have no immediate market period for producers whose goods can be inexpensively stored.
true
True or false: When considering the price elasticity of supply, price and total revenue always move together.
true
The price elasticity of demand for widgets is 0.75. Assuming no change in the demand curve for widgets, a 9 percent decrease in sales implies a(n)
Price Elasticity of Demand= %change in demand/%change in price -(9%)/0.75 = 12 The negative sign implies that demand and price have moved in opposite directions ie. Price has increased. So, there is a 12% increase in price.
The price elasticity of demand for widgets is 2. Assuming no change in the demand curve for widgets, an increase in sales of 12 percent implies a(n)
Price Elasticity of Demand= %change in quantity/%change in price 12/2= 6 a 6% reduction in price
Over which of the following price ranges is the price-elasticity of supply greater than 1? Price ($ Per Unit) Quantity Supplied (Units/wk) ______________________________________________________________________________________ 5 100 10 200 15 250 20 300 25 350 30 500
Price Elasticity of Demand= -(Q2 - Q1)(P1 + P2) / (P2 - P1)(Q1 + Q2) Follow for all ranges -(350-500)(25+30)/(30-25)(350+500) (150)(55)/(5)(850) 8250/4250 1.94 Answer is 25-30
A price increase from $52 to $58 results in an increase in quantity supplied from 210 units to 250 units. The price elasticity of supply in this price range is
Price Elasticity of Supply = (250-210)/210 / (58-52)/52 (40)/210 / (6)/52/ 40/210 x 52/6 2080/1260 1.65
With price elasticity of supply, the supply curve slopes upward because of the positive relationship between which of the following?
Price and amount supplied
Which of the following are inferior goods?
Used clothing A bus ticket from Los Angeles to San Diego
Digital cameras and memory sticks are what type of goods?
complementary
If the price elasticity of demand for a product is equal to 0.75, then a decrease in price of 3 percent will increase quantity demanded by
Price Elasticity of Demand % change in quanitity demanded/% change in price 0.75/3 Calculate the percentage change in quantity demanded - Price elasticity of demand = Percentage change in quantity demanded/Percentage change in price Percentage change in quantity demanded = Price elasticity of demand * Percentage change in price Percentage change in quantity demanded = 0.75 * 3 = 2.25% Thus, The quantity demanded would increase by 2.25%.
The midpoint formula for calculating elasticity ______ the two prices and the two quantities.
averages
Economists typically express the elasticity coefficient as an absolute value in order to ______.
avoid ambiguity
The percentage change in quantity demanded of good X divided by the percentage change in the price of product Y is known as the ______
cross elasticity of demand
By comparing two different products ______ , elasticity of demand provides insight into consumer behavior concerning substitute and complementary goods.
cross, cross-price
True or false: The price elasticity of supply is the percentage change in price divided by the percentage change in quantity supplied.
false
In times of economic turmoil, demand rises for ______ as a speculative financial investment.
gold
The demand for most farm products is ______.
highly inelastic
We can expect a greater response, and therefore greater elasticity of supply, the ______.
more time the firm has to react to price changes
A corporate merger between two firms is more likely to meet with government approval if the cross elasticity coefficient of demand for both firms' products is ______.
near zero
When the cross-price elasticity is ______ , the goods are complementary.
negative
The larger the ______, the greater the complementarity between two goods.
negative cross-elasticity coefficient
For a consumer with a household income of $50,000, which item would have the greatest price elasticity of demand?
new car
If the income elasticity coefficient is positive, then the good is a ______ good.
normal
The income elasticity of demand is calculated by dividing the ______.
percentage change in quantity demanded by the percentage change in income
In measuring consumer responsiveness, we use ______ rather than absolute amounts.
percentages
When a small change in price causes quantity demanded to increase from zero to all that buyers can obtain, the price elasticity of demand is considered ______.
perfectly elastic
When the price elasticity coefficient is equal to infinity, the product exhibits ______ demand.
perfectly elastic
When the price elasticity of demand for a product is ______, a small decrease in price causes buyers to increase their purchases from zero to all they can obtain
perfectly elastic
Supply for one-of-a-kind antiques is ______.
perfectly inelastic
Other things being equal, there is greater ______ when the price of a good or service is high relatiThe government pays close attention to the ______ when it selects which goods and services to tax.ve to consumers' incomes.
price elasticity of demand
The government pays close attention to the ______ when it selects which goods and services to tax.
price elasticity of demand
The proportion of consumers' incomes allocated to a particular good or service is a determinant of ______.
price elasticity of demand
The percentage change in quantity demanded divided by the percentage change in price describes ______.
the basic formula for the price elasticity of demand coefficient
Supporters of legalizing illegal drugs believe that ______.
the drugs should be legal for adults and regulated for purity and potency
Normal Goods
the income-elasticity coefficient Ei is positive, meaning that more of those goods are demanded as incomes rise. Such goods are called normal or superior goods
Intermediate Market Period
the length of time over which producers are unable to respond to a change in price with a change in quantity supplied
What is the term for the total amount the seller receives from the sale of a product in a particular time period?
total revenue
When the price elasticity of demand is relatively price inelastic, a price increase will have what effect on total revenue?
total revenue will rise
True or false: When an increase in the price of one good decreases the demand for another good, the goods are called complementary goods.
true
A 3% decrease in the price of sugar causes a 3% increase in the quantity demanded. In this example, the demand for sugar has _____ elasticity.
unit
If the price changes and total revenue remains constant, the price elasticity of demand must be ______ elastic.
unit
When an increase or decrease in price does not change total revenue, demand is ______ elastic.
unit
Gus buys cupcakes every Saturday morning. When he walks into the bakery, he always orders by saying, "Give me $10 worth of cupcakes." What does this tell you about Gus's elasticity of demand for cupcakes? Gus's demand for cupcakes is
unit elastic
If a 2% decrease in the price of a good causes a 2% increase in the quantity demanded, the demand is ______.
unit elastic
If the loss in revenue from a lower price is exactly offset by the gain in revenue from the increase in sales, then the price elasticity of demand is ______.
unit elastic
If the total revenue remains unchanged when there is an increase or decrease in price, demand is ______.
unit elastic
The percentage change in quantity demanded is equal to the percentage change in price when demand is ______.
unit elastic
The segment of the total-revenue curve that sits between the initial upward sloping portion and the later downward sloping portion illustrates when demand is ______.
unit elastic
When a price changes yet total revenue remains the same, demand is ______.
unit elastic
Midpoint Formula
(change in quantity/sum of quantities/2) / (change in price/sum of prices/2)
Suppose the price of a pair of premium socks falls from $2.00 to $1.90 and the quantity of the socks demanded increases from 110 to 118. Calculate the price elasticity of demand coefficient using the midpoint formula.
1.4
The price of season tickets to a performing arts theater decreases by 3 percent. As a result, the quantity demanded increases by 12 percent. The price elasticity of demand for season tickets is
4 12/3=4
The supply of product X is elastic if the price of X rises by
5 percent and quantity supplied rises by 7 percent.
What does "shiftability" refer to in economics?
A firm's ability to move resources from the production of one product to another
Which of the following exemplifies a product that is perfectly elastic?
A mining firm selling its output in a purely competitive market
Inferior Goods
A negative income-elasticity coefficient designates an inferior good. Cabbage, long-distance bus tickets, and used clothing are likely inferior goods. Consumers decrease their purchases of inferior goods as incomes rise.
What accounts for the small price elasticity of demand coefficient (Ed) in the lower-right segment of the linear demand curve?
A small percentage change in quantity relative to a large percentage change in price
Total Revenue Test
A test to determine elasticity of demand. Demand is elastic if total revenue moves in the opposite direction from a price change; it is inelastic when it moves in the same direction as a price change; and it is of unitary elasticity when it does not change when price changes
independent goods
A zero or near-zero cross elasticity suggests that the two products are unrelated or independent goods. An example is walnuts and plums: We do not expect a change in the price of walnuts to have any effect on purchases of plums, and vice versa.
price elasticity coefficient and formula
Ed= percentage change in quantity demanded of product X/ percentage change in price of product X
Increased demand for a limited supply of antiques has resulted in which of the following?
An increase in the price of antiques
percentage change in the equation calculated
Ed=change in quantity demanded of X/original quantity demanded of X DIVIDED BY change in price of X/original price of X
At a specific point on the demand curve for backpacks, the elasticity of demand iscalculated to be −0.7.
At that point, we would describe demand as: INELASTIC If the price of backpacks fell by 10%, the quantity demanded would rise by ______ and revenue for the backpack industry would ______: 7 %, FALL If the price of backpacks rose by 20% the quantity demanded would fall by ______ and revenue for the backpack industry would ______: 14%, RISE
What is the price elasticity of demand over the range of $12 to $14? Price Per Unit Quantity Demanded Per Unit _____________________________________________________________________ $20 12 18 17 16 20 14 24 12 30 10 36 8 40 6 44 4 48 -
At, P1 = $12, Q1 = 30 AT, P2 = $14, Q2 = 24 Price Elasticity of Demand = -(Q2 - Q1)(P1 + P2) / (P2 - P1)(Q1 + Q2) -(24-30)(12+14)/(14-12)(30+24) (6)(26)/(2)(54) 156/108 1.44 Answer 1.44
Why is the supply curve more elastic in the long run than in the short run
Because firms have time to adjust their plant sizes
Why is the supply curve more elastic in the long run than in the short run?
Because firms have time to adjust their plant sizes
Why will the coefficient for the price elasticity of demand always be a negative number?
Because price and quantity demanded are inversely related
How is a buyer's responsiveness to price changes measured?
By the price elasticity of demand coefficient
Which of the following would most exemplify perfectly inelastic demand?
a diabetics demand for insulin
Which of the following products are targeted by government legislatures for increased excise taxes?
Cigarettes Gasoline Liquor
Which of the following goods would economists expect to be most affected by falling incomes during a recession?
Cruise vacations Flat screen TVs
The inelastic nature of farm products means that the increased output brought about by a good growing season results in which of the following?
Decreased prices Depressed total revenue
unit elasticity
Demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or supplied is equal to the percentage change in price.
Income Elasticity of Demand FORMULA
Ei= (% change in quantity demanded)/(% change in income) Or Ei= [(Q2-Q1)/(Q1+Q2/2)]/[(I2-I1)/(I1+I2/2)]
Blossom, Inc., sells 1,000 bottles of perfume a month when the price is $5. A huge increase in resource costs forces Blossom to raise the price to $6, and the firm only manages to sell 800 bottles of perfume. Using the midpoint formula, the price elasticity of demand coefficient is
Elasticity = % change in quantity/% change in price % change in quantity =[ (1000-800)÷ (1000+800)/2]*100 = 200/900*100= 22.22 % change in price =[ ( 6-5) ÷ (6+5)/2]*100 = 1/5.5*100= 18.18 Elasticity = 22.22/18.18= 1.22 So, here Elasticity is greater than one. So, Elastic Demand.
Price elasticity of supply formula
Es = (%change in quantity supplied of good X) / (%change in the price of good X)
cross elasticity of demand formula
Exy = % change in quantity demanded of product X / % change in price of product Y
subsititue goods
If cross elasticity of demand is positive, meaning that sales of X move in the same direction as a change in the price of Y, then X and Y are substitute goods
Benjamin lost his job and, as a result, he no longer goes out for dinner or the movies. Benjamin's change in spending habits would be reflected in which of the following measurements?
Income elasticity of demand
Which type of elasticity shows how responsive demand is to a change in earnings?
Income elasticity of demand
Which of the following is true of the coefficient of price elasticity of demand as price increases along a linear demand curve?
It increases.
Which of the following are viable arguments in favor of legalizing illegal drugs?
Legalization would reduce drug trafficking. Drug-related street crime would decline. Drugs should be treated like alcohol and regulated for purity.
Which of the following explain the high prices of antiques?
Limited supply Highly inelastic supply Strong demand
Which of the following are viable arguments against the legalization of illegal drugs?
Overall demand for illegal drugs is more elastic than proponents think. Legalization of drugs might make their use more socially acceptable.
If the demand for product X is inelastic, an 8 percent decrease in the price of X will
Price Elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price. When this value is less than 1 that means demand is inelastic I e change in prices cause very small change in demand of product.when value is greater than 1 it means demand is elastic. So, when there is 8 percent decrease in the price of X then there will be increase in quantity demanded by less than 8%.
When the price of a product is increased 8 percent, the quantity demanded decreases 20 percent. The price-elasticity of demand coefficient for this product is
Price elasticity = % change in quantity demanded / % change in price 20/8 2.5 Answer 2.5
How is total revenue calculated?
Price x Quantity
inelastic
Product or resource demand for which the price elasticity of demand is less than 1, so that any given percentage change in price leads to a smaller percentage change in quantity demanded. As a result, quantity demanded is relatively insensitive to (inelastic with respect to) price.
perfectly elastic
Product or resource demand in which quantity demanded can be of any amount at a particular product or resource price; graphs as a horizontal demand curve
elastic
Product or resource demand whose price elasticity of demand is greater than 1, so that any given percentage change in price leads to a larger percentage change in quantity demanded. As a result, quantity demanded is relatively sensitive to (elastic with respect to) price.
Which of the following factors have increased the demand for antiques over time?
Rising incomes Population growth
Which of the following goods and services would most likely exhibit an inelastic price elasticity of demand coefficient?
Salt Automobile repairs Medical care
Which of the following are the main sources of gold price fluctuations?
Shifts in demand Highly inelastic supply High cost of production
During the immediate market period, which products would not have a supply curve that is perfectly inelastic when prices rise?
Shoes Soft drinks
Total Revenue Formula
TR = P x Q Total Revenue = Price x Quantity
Which of the following is true when the demand is unit elastic?
The percentage change in quantity demanded is equal to the percentage change in price.
Excise taxes are levied on which of the following?
The production of specific products Products with a low elasticity of demand The quantity of products sold
Price Elasticity of Supply
The ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price; a measure of the responsiveness of producers to a change in the price of a product or resource.
The cross-price elasticity of demand measures which of the following?
The responsiveness of consumer purchases of one product due to a change in the price of some other product
Why is a demand curve's shape or slope (its flatness or steepness) not a sound basis for judging elasticity?
The slope of a demand curve is computed from absolute changes in price and quantity.
Total Revenue (TR)
The total number of dollars received by a firm (or firms) from the sale of a product; equal to the total expenditures for the product produced by the firm (or firms); equal to the quantity sold (demanded) multiplied by the price at which it is sold.
What is represented by the P x Q rectangle lying below a point on a demand curve?
Total revenue
How many products (goods and services) are considered when referring to the cross elasticity of demand formula?
Two
Which of the following are reasons that economists use percentages rather than absolute amounts to measure consumer responsiveness?
Using absolutes might arbitrarily affect the impression of buyer responsiveness. Using percentages allows economists to correctly determine consumer responsiveness in relation to changes in prices of different products.
Over which of the following price ranges is the demand inelastic? Price per Unit Quantity Demanded per Unit of Time _________________________________________________________________________ $ 20 12 18 17 16 20 14 24 12 30 10 36 8 40 6 44 4 48
Using midpoint method, Elasticity = (Change in quantity / Average quantity) / (Change in price / Average price). Answer $10-$8
Suppose you are given the following data on demand for a product. The price elasticity of demand (based on the midpoint formula) when price decreases from $8 to $7 is Price Quantity Demanded $ 10 30 9 40 8 50 7 60 6 70
When P 1= 8, Q1 = 50 P2 = 7, Q2 = 60. Elasicity = (Change in Q / Average Q) / (Change in P / Average P) = [(60 - 50) / (60 + 50)] / [(7 - 8) / (7 + 8)] = (10 / 110) / (- 1 / 15) =1.36 closest multiple choice answer is 1.38
The horizontal axis is labeled Q. The numbers marked on the horizontal axis from left to right are: 188, 121, 384, and 416. The vertical axis is labeled P. The numbers marked on the vertical axis from bottom to top are as follows: $5.70 and $6.30. The graph shows two falling lines labeled D 1 and D 2. D 1 is steeper than D 2 and D 2 is at the right of D 1. D 1 passes through (188, $6.30) and (212, $5.70) and D 2 passes through (384, $6.30) and (416, $5.70). The starting point of D 1 is at the top-left of (188, $6.30) and the ending point is at the bottom right of (212, $5.70). The starting point of D 2 is at the top-left of (384, $6.30) and the ending point is at the bottom right of (416, $5.70). Refer to the diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be
When Price = $5.70, Quantity demanded = 212 When Price = $6.30, Quantity demanded = 188 Point Price Elasticity = % Change in quantity demanded / % Change in price = [(188 - 212) / 212] / [$(6.3 - 5.7) / 5.7] = (-24 / 212) / ($0.6 / 5.7) = - 1.08 Absolute value = 1.08 Mid-point Elasticity = (Change in quantity / Average quantity) / (Change in price / Average price) = [-24 / (188 + 212) / 2] / [$0.6 / $(6.3 + 5.7) / 2] = [-24 / (400 / 2)] / [0.6 / (12 / 2)] = (- 24 / 200) / (0.6 / 6) = -1.2 Therefore, elasticity = 1.2 (We need to use mid-point method).
complimentary goods
When cross elasticity is negative, we know that X and Y "go together"; an increase in the price of one decreases the demand for the other. So the two are complementary goods. For example, a decrease in the price of digital cameras will increase the number of memory sticks purchased. The larger the negative cross-elasticity coefficient, the greater is the complementarity between the two goods.
Total revenue will rise under which of the following circumstances?
When the price falls on a good or service with an elastic price elasticity of demand
Suppose the income elasticity of demand for toys is -1.5. This means that
a 10 percent increase in income will decrease the purchase of toys by 15 percent.
Which of the following represents a perfectly elastic demand curve?
a horizontal line
Income Elasticity of Demand
a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
perfectly inelastic
a price change results in no change whatsoever in the quantity demanded
demand is elastic if
a specific percentage change in price in the denominator results in a larger percentage change in quantity demanded in the numerator
excise tax
a tax on the production, sale, or consumption of goods produced within a country
Which of the following goods or services is more likely to be price inelastic?
an appendectomy
applications of price elasticity of supply
antiques: inelastic supply--non-reproducible products reproductions--more elastic supply gold (volatile) prices--inelastic supply *the more inelastic the supply, the greater change in price when demand changes
The Coca-Cola Company, in considering whether to lower the price of Sprite, would be interested in knowing the value of the ______ elasticity of demand between Sprite and Coke.
cross
The government uses the idea of the ______ elasticity of demand to determine whether a proposed merger between two firms is a good idea.
cross
Calculating the percentage change in quantity demanded for a given product involves dividing the ______ by the ______.
change in quantity demanded; original quantity demanded
To calculate the ______, take the percentage change in quantity demanded of product X and divide by the percentage change in the price of product Y.
coefficient for the cross-price elasticity of demand
As you move along the demand curve from higher to lower prices, the price elasticity of demand _____
declines
When the price elasticity of demand is inelastic, a decrease in price will ______ total revenue.
decrease
Suppose the price elasticity of demand for beef is about 1.6. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to
decrease by approximately 32%
As you move along the demand curve from higher to lower prices, the price elasticity of demand .
decreases
Total revenue can be graphically evaluated and depicted using the _____ curve.
demand
Which of the following would be considered a luxury and thus exhibit a high price elasticity of demand?
dining out
The formula for the cross elasticity of demand is written as the percentage change in the quantity demanded of one product ______ by the percentage change in the price of another product
divided
Product ______ should be considered when discussing time as a determinant of price elasticity of demand.
durability
A coefficient of price elasticity of demand that is greater than 1 indicates that demand is .
elastic
A relatively large percentage change in quantity demanded divided by a relatively smaller change in price yields relatively price _____ demand.
elastic
Demand for a specific brand of handbag is more price ______ than demand for handbags in general.
elastic
Demand is relatively price ______ when price and total revenue change in opposite directions.
elastic
If the quantity supplied by producers is relatively responsive to price changes, supply is relatively price
elastic
Product demand is generally more ______ when the time period under consideration is longer.
elastic
The demand for Reebok sneakers is relatively price .
elastic
The more a good or service is considered to be a luxury rather than a necessity, the more ______ the demand for the good.
elastic
When prices and total revenue change in opposite directions, the price elasticity of demand is ______.
elastic
When the price elasticity of demand is relatively price ______ a price decrease will increase total revenue.
elastic
Restaurant meals, smart watches, and concert tickets are all examples of goods that exhibit a high price _____ of demand.
elasticity
Which of the following typically varies over the different price ranges of the same demand curve?
elasticity
Which of the following would be considered a necessity and thus have a low price elasticity of demand?
electricity
In the short run, the ______ price is lower than in the immediate market period.
equilibrium
The formula for calculating price elasticity of demand that involves terms for the average of two quantities and the average of two prices is known as the ______ formula.
midpoint
Supply is perfectly inelastic during the ______.
immediate market period
The length of time over which producers are unable to respond to a change in price with a change in quantity supplied is known as the ______.
immediate market period
The percentage change in quantity demanded divided by the percentage change in income is the formula for the ______ elasticity of demand.
income
When recessions occur in the economy, the ______ elasticity of demand helps predict which products will experience higher or lower demand.
income
The purpose of charging different prices to different groups of customers is to
increase revenue and in turn profits. Lower afternoon movie prices are an example of this type of pricing.
Lowering the price of a product along the elastic range of demand will ______.
increase total revenue
When the price elasticity of demand for a product is relatively price elastic and price is ______, total revenue will ______.
increased; decrease
Walnuts and screwdrivers would be classified as what type of goods?
independent
A 5% decline in the price of cut flowers results in a 3% increase in the quantity demanded. Therefore, the demand for cut flowers is ______.
inelastic
A decrease in price will lead to a decrease in total revenue if demand is ______.
inelastic
A price increase will increase total revenue if the price elasticity of demand is relatively price _____
inelastic
A small percentage change in quantity demanded divided by a larger percentage change in price indicates ______ demand.
inelastic
An addict's demand for heroin is an example of a demand that is perfectly
inelastic
Because of the limited, highly ______ supply of gold, small changes in demand produce large changes in price.
inelastic
Because the physical availability of gold is limited and gold production is costly, the supply of gold is ______.
inelastic
Demand for a product that is broadly defined is more price _____ than demand for a product that is narrowly defined.
inelastic
If a 4% decrease in the price of coffee leads to a 2% increase in the quantity demanded, the price elasticity of demand for coffee is relatively price
inelastic
If a 4% decrease in the price of coffee leads to a 2% increase in the quantity demanded, the price elasticity of demand for coffee is relatively price _____
inelastic
If demand is ______, a price decrease will reduce total revenue.
inelastic
If the percentage change in quantity demanded is less than the percentage change in price, then the price elasticity of demand is ______.
inelastic
If the price elasticity coefficient of supply is less than 1, supply is ______.
inelastic
In the immediate market period, supply is perfectly _____ , which is illustrated as a vertical line.
inelastic
In the immediate market period, supply is perfectly ______ , which is illustrated as a vertical line.
inelastic
Legislatures tend to seek out products that have ______ demand when levying excise taxes.
inelastic
Lowering the price of a product along the ______ range of demand will decrease total revenue.
inelastic
When demand is relatively price _____ , the coefficient for the price elasticity of demand will be less than one.
inelastic
When price and total revenue move in the same direction along the demand curve, this indicates that demand is ______
inelastic
When price and total revenue move in the same direction, demand is ______.
inelastic
When the demand for a product is ______ and the price is reduced, total revenue will fall
inelastic
When the price elasticity of demand is perfectly ______ , a change in price causes no change in the quantity demanded.
inelastic
When consumers decrease their purchases of a good as their income rises, the good is known as a(n) ______ good.
inferior
A product that exhibits perfectly elastic demand has a price elasticity coefficient equal to ______.
infinity
Long Run
is a time period long enough for firms to adjust their plant sizes and for new firms to enter (or existing firms to leave) the industry
Because the demand for their products ______, farmers may find that large crop yields are undesirable.
is highly inelastic
In the upper-left portion of a linear demand curve, price elasticity of demand tends to be which of the following?
more elastic
In the case of a firm that is selling its output in a purely competitive market, the demand ______.
is perfectly elastic
Demand is more price elastic toward the upper-left segment of the demand curve because the original reference quantity ______.
is small
Along the unit elastic range of the demand curve, if the price increases or decreases, what happens to total revenue?
it will not change
A luxury cruise will exhibit a relatively ______ price elasticity of demand.
large great high higher big
When demand is inelastic, the percentage change in quantity demanded is ______ the percentage change in price.
less than
Suppose that the price of product X rises by 6 percent and the quantity supplied of X increases by 3 percent. The coefficient of price elasticity of supply for good X is
less than 1, and therefore supply is inelastic.
A demand curve ______ is when the slope is constant throughout.
linear or straight
In the ______ run, a farmer has time to acquire additional land and buy more machinery and equipment.
long
In the ______, firms can adjust their plant sizes and new firms can join or leave the marketplace.
long run
A product that is considered to be a necessity would have a _____ price elasticity of demand.
low
Home-prepared meals, toothpaste, and toilet paper have income elasticities of demand coefficients that are ______.
low
cross elasticity of demand
measures the sensitivity of consumer purchases of one product (call it X) to a change in the price of some other product (call it Y) The ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. A positive coefficient indicates the two products are substitute goods; a negative coefficient indicates they are complementary goods.
If the quantity supplied by producers is relatively insensitive to price changes, supply is ______.
relatively price inelastic
When using the total-revenue test, demand is determined to be unit-elastic when total revenue ______.
remains constant when price changes
The ______ run is a period of time that is not long enough to change plant capacity.
short
If the price elasticity of demand is unit elastic and price changes, total revenue will ______
stay constant
A demand curve is when the slope is constant throughout.
straight or linear
The cross elasticity between Coke and Pepsi is high, which means they are ______.
strong substitutes for each other
Larger positive cross elasticity implies greater ______ between two products.
substitutability
Which of the following is a determinant of the price elasticity of demand?
substitutability
______ is the ease of switching from one good to another.
substitutability
The percentage change in quantity supplied divided by the percentage change in price measures the price elasticity of ______
supply
Because a producer does not have time to respond to a change in demand during the immediate market period ______.
supply is perfectly inelastic
Factors that affect Price Elasticity of Demand
sustainability portion of income luxuries vs necessities time
If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then
the price elasticity of demand is approximately 2.25. Price Elasticity of Demand= -(Q2 - Q1)(P1 + P2) / (P2 - P1)(Q1 + Q2) -(3000-5000)(10+8)/(10-8)(3000+5000) (2000)(18)/(2)(8000) 36000/16000 2.25
The price elasticity of demand can tell you if ______ will increase or decrease with a price change.
total revenue
A low positive cross elasticity indicates that two products are ______ each other.
weak substitutes for
Soft drinks and sneakers would have a cross elasticity coefficient nearest to ______.
zero