micro chapter 6
In fall 2006, Pace University in New York raised its annual tuition from $24,500 to $29,250. Freshman enrollment declined from 1,425 in fall 2005 to 1,140 in fall 2006. Assuming that the demand curve for places in the freshmen class at Pace did not shift between 2005 and 2006, use this information to calculate the price elasticity of demand. Use the midpoint formula in your calculation. The price elasticity of demand for Pace University for the fall of 2006 is _______. The demand for places in Pace's freshman class is price _____. Calculate the total revenue generated from Pace's freshman class in 2005 ______________ . Calculate the total revenue generated from Pace's freshman class in 2006 _________-. The total amount of tuition Pace received from its freshman class _____ in 2006 compared with 2005.
-1.26 elastic 34912500 33345000 fell
A study of the consumption of beverages in Chile found that for soda "a price increase of 10% is associated with a reduction in consumption of 13.7%." Given this information, the price elasticity of demand for soda in Chile is ______. Is demand price elastic or price inelastic? Briefly explain. A. Elastic, because the percentage change in quantity demanded is greater than the percentage change in price. B. Inelastic, because the percentage change in quantity demanded is less than the percentage change in price. C. Elastic, because the percentage change in quantity demanded is less than the percentage change in price. D. Inelastic, because the percentage change in quantity demanded is greater than the percentage change in price.
-1.37 A
According to an article in the Wall Street Journal, "In the four weeks through Sept. 1, the total number of orange juice gallons sold fell by 5.1% from the same period last year, as prices increased by 2.6%." a. Assuming that the demand for orange juice didn't shift during this period, the price elasticity of demand for orange juice is__________. b. The article also notes that the tastes of U.S. consumers have changed, and they are consuming less fruit juice partly because of its high sugar content. Does this information affect your answer to part (a)? A. No. The price elasticity of demand for orange juice would be the same as part (a), regardless of the change in tastes of U.S. consumers. B. Yes. With this additional information, we know that the price elasticity of demand must be smaller in absolute value (that is, closer to zero) than the value calculated in part (a). C. Yes. With this additional information, we know that the price elasticity of demand must be larger in absolute value (that is, farther from zero) than the value calculated in part (a). D. Yes. If consumers' tastes changed, then the demand curve for orange juice shifted and the entire 5.1 percent decline in orange juice consumption is due to the shift in the demand curve and has nothing to do with a change in price.
-1.96 B
Suppose income increases by 10 percent and, as a result, the quantity of a particular brand of automobile demanded (holding the price for this particular automobile constant) increases by 8 percent. The income elasticity of demand for this brand of car is _____. This particular brand of automobile is a(n) _______ good. In another example, suppose market research shows that a particular brand of truck is a normal good and a necessity. If so, then the income elasticity of demand for this truck is A. less than 1 but greater than 0. B. negative. C. greater than 1. D. positive. E. zero.
0.8 normal A
According to a news story about the bus system in the Lehigh Valley in Pennsylvania, "Ridership fell 14 percent in 2012 after a 33 percent increase" in bus fares. Given this information, the demand for bus trips is _______. The best explanation for this result is that A. bus trips only appeal to a certain market. B. these trips are a small portion of someone's budget. C. bus trips are a necessity for those without cars. D. over time people can find alternate forms of transportation.
inelastic C
According to an article in the Economist, when Chicago enacted a 1-cent-per-ounce tax on soda, "it was introduced to protect public health but its main purpose was to plug a $1.8bn hole in the [city's] budget." a. Did policymakers in Chicago believe that the demand for soda was price elastic or price inelastic? Given that policymakers in Chicago were expecting a substantial amount of revenue to be raised from the tax, they most likely believed that the demand for soda was price ______. b. In the end, the tax raised less revenue than expected, and the tax was repealed. The demand for soda turned out to be _____ elastic than policymakers had expected. c. Would policymakers in Chicago have been more successful in meeting their goal of discouraging people from drinking sweetened soda if the demand for soda were more elastic or more inelastic? Would they have been more successful in meeting their goal for raising more revenue for the city if the demand for soda were more elastic or more inelastic? The city would have been more successful in discouraging soda consumption with a 1-cent-per-ounce tax on soda if the demand for soda were more price ______. A 1-cent-per-ounce tax on soda would have generated more tax revenue for the city if the demand was more price _______. Briefly explain in what sense the city's goals were in conflict. The city's goals were in conflict because improving public health required having the decline in people buying soda be as _______ as possible, whereas raising revenue required having the decline in people buying soda be as ______ as possible. Because policymakers repealed the tax after it failed to raise the expected revenue, it seems likely that the policymakers were more interested in _______________________.
inelastic more elastic, inelastic large, small, raising revenue
Suppose a local bank increases the fees they charge for their bank accounts by 20 percent. In response, the demand for their bank accounts decreases from 40,000 to 35,000. What is price elasticity of demand for this bank's accounts? Using the midpoint formula, the price elasticity of demand is _______.
-0.67
Rank the following four goods from lowest income elasticity of demand (1) to highest income elasticity of demand (4) a.Bread ___ b. Pepsi ___ c. Mercedes-Benz automobiles ___ d. Laptop computers ___
1 2 4 3
Suppose that after hurricane Irene, the average income in Cape Charles, Virginia decreased by 12 percent. In response to this change in income, suppose the quantity of steak demanded in Cape Charles (holding the price of steak constant) decreased by 16 percent. What is the income elasticity of demand for steak in Cape Charles? The income elasticity of demand for steak in Cape Charles is _______. In this instance, steak in Cape Charles is ___________________________.
1.33 normal and a luxury
Suppose that the long-run price elasticity of demand for gasoline is −0.40. Assume that the price of gasoline is currently $4.00 per gallon, the quantity of gasoline is 140 billion gallons per year, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon. Suppose that in the long run the price of gasoline increases by $0.50 per gallon after the $1.00 excise tax is imposed. a. Using the midpoint formula, after the tax is imposed, the new quantity of gasoline demanded is _____________ billion gallons per year. In the long run, the tax reduces the consumption of gasoline by ____________ billion gallons per year. c. Compared to the short-run effect of an increase in the excise tax on gasoline, the long-run effect of an increase in the excise tax has a ______ effect on the quantity demanded of gasoline; it reduces consumption of gasoline by a ______ amount; and it generates a ______ tax revenue for the federal government. A. smaller; smaller; larger B. larger; smaller; smaller C. larger; larger; smaller D. smaller; larger; smaller
133.56 6.44 133.56 C
Suppose the demand for a Czech novel translated into English is perfectly inelastic. Assume the initial price of the translated novel is $22.00 and the quantity demanded is 246 copies per year. If the price of the translated novel increases by $2.00, then the quantity demanded will be _____ copies per year. Next, suppose the demand for a mystery novel by Dean Koontz is infinitely elastic. In this example, assume the initial price of the novel is $23.00 and the quantity demanded is 64 thousand copies per year. If the price of the mystery novel increases by $3.00, then the quantity demanded will be _ copies per year.
246 0
Compare the demand for water with the demand for wine. The demand for water is likely A. relatively more inelastic because water is a necessity. B. relatively more elastic because water is a necessity. C. relatively more elastic because water is a luxury. D. equally elastic as the demand for wine. E. relatively more inelastic because water is a luxury.
A
Like many other cities, Denver experienced a sharp decline in construction of new houses in the years following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In addition, builders stopped buying and preparing home lots for construction. According to an article in the Wall Street Journal, by 2014, as consumers increased their demand for new homes in Denver, "New-home prices have surged over the past two years ... amid a shortage of home lots and skilled construction workers." In the future, the price increases of new houses in Denver can be expected to be A. smaller because supply is more elastic over time. B. smaller because supply is less elastic over time. C. larger because supply is less elastic over time. D. larger because supply is more elastic over time.
A
When XYZ firm entered the market for good A two years back, it kept the price of its product low to attract customers away from its leading competitor. The firm has now established itself and has a market share of 20 percent. The management of XYZ is planning to increase price of A from the current $6 per unit to $7 per unit. Timothy Walters, the marketing head, however, feels this is not a good idea because it will reduce quantity demanded drastically from the current 1,200 units to 900 units. His colleague and the head of the sales department, Jake Mayers, feels that the quantity demanded would only decline by 250 units. According to Jake, the firm can afford to increase the price because even after the price increase they would still have significant market share. Which of the following, if true, would imply that the firm is operating in the inelastic portion of the demand curve? A. The quantity demanded declines by 10 percent in response to the $1 price increase. B. The demand curve recently shifted such that 20 additional units are demanded at each price level. C. The $1 increase in price causes the leading competitor's market share to increase substantially. D. The rival firm has reduced the price of its product by $1. E. The demand curve is vertical.
A
When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand? A. 0 B. A negative number C. 1 D. A number between 0 and 1 If demand is perfectly elastic, then what is the effect of an increase in price? A. a decrease in quantity demanded to zero B. no change in quantity demanded C. a very small change in quantity demanded D. a change in quantity demanded exactly equal to the change in price
A, A
The cross-price elasticity of demand is A. the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. B. the percentage change in quantity demanded divided by the percentage change in price. C. the percentage change in quantity demanded of one good divided by the percentage change in the quantity of another good. D. the percentage change in quantity demanded divided by the percentage change in income. E. the percentage change in quantity supplied divided by the percentage change in price. If the cross-price elasticity of demand is negative, then the products are: A. necessities, but if it is positive, then the products are luxuries. B. complements, but if it is positive, then the products are substitutes. C. unrelated, but if it is positive, then the products are related. D. inferior goods, but if it is positive, then the products are normal goods. E. substitutes, but if it is positive, then the products are complements.
A, B
Income elasticity of demand is A. the percentage change in quantity demanded divided by the percentage change in income. B. the percentage change in income divided by the percentage change in prices. C. the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. D. the percentage change in quantity demanded divided by the percentage change in price. E. the percentage change in quantity supplied divided by the percentage change in price. Use income elasticity to distinguish a normal good from an inferior good. For a normal good, the income elasticity of demand will be A. positive or negative, but for an inferior good, the income elasticity will be zero. B. positive, but for an inferior good, the income elasticity of demand will be negative. C. one, but for an inferior good, the income elasticity will be zero. D. negative, but for an inferior good, the income elasticity of demand will be positive. E. elastic, but for an inferior good, the income elasticity will be inelastic. Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity? A. Yes. If the income elasticity of demand is greater than 1, then the good is a luxury. If the income elasticity of demand is positive but less than 1, then the good is a necessity. B. Yes. If the income elasticity of demand is positive, then the good is a luxury. If the income elasticity of demand is negative, then the good is a necessity. C. Yes. If the income elasticity of demand is greater than 10, then the good is a luxury. If the income elasticity of demand is positive but less than 10, then the good is a necessity. D. Yes. If the income elasticity of demand is greater than 1, then the good is a necessity. If the income elasticity of demand is positive but less than 1, then the good is a luxury. E. No. It is not possible to tell from the income elasticity of demand whether a good is a luxury or a necessity.
A, B, A
To legally operate a taxi in New York City, a driver must have a medallion issued by the New York City Taxi and Limousine Commission, an agency of the city's government. In 2019, the number of medallions was 13,587—a number that has remained unchanged since 1937. In recent years, the taxi industry in New York and other large cities has encountered competition from companies such as Uber and Lyft, app-based ride-hailing services that offer rides from drivers who own their own cars. Uber uses surge pricing, under which it varies the prices it charges based on the demand for rides, with rides during busier periods, such as Saturday nights, having higher prices. In 2019, there were more than 80,000 cars in New York City offering rides through ride-hailing apps. a. The limitation on their number of taxi medallions implies that the supply is price A. perfectly inelastic because the number of taxi medallions does not change with the price. B. elastic because the number of taxi medallions changes with the price. C. inelastic because the number of taxi medallions changes with the price. D. elastic because the number of taxi medallions does not change with the price. b. Compared to the supply of taxis in New York City, the supply of Uber rides is A. less elastic because the supply of Uber drivers also changes as the price changes. B. more elastic because people will choose Uber only if there is no taxi available. C. more elastic because the supply of Uber drivers also changes as the price changes. D. less elastic because people will choose Uber only if there is no taxi available. c. In 2018, the New York City government froze the number of cars the ride-hailing firms could operate in the city. What effect is this freeze likely to have on the price of an Uber ride in New York City? Freezing the number of cars that the ride-hailing firms could operate is likely to _______ the price of an Uber ride.
A, C increase
According to an article in the Wall Street Journal in 2019, "Farm incomes have slid despite record productivity on American farms." Shouldn't the ability of farmers to grow more crops per acre of land, as indicated by rising farm productivity, increase the income of farmers rather than lower it? How can you resolve this apparent paradox? Farm incomes decrease when the total revenue that the farms receive from selling their crops decreases. Increasing farm productivity shifts the supply curve for crops to the A. right, lowering the equilibrium price. Because the demand for crops is price elastic, a lower price reduces the revenue that farmers received from selling their crops. B. right, lowering the equilibrium price. Because the demand for crops is price inelastic, a lower price reduces the revenue that farmers received from selling their crops. C. left, lowering the equilibrium price. Because the demand for crops is price inelastic, a lower price reduces the revenue that farmers received from selling their crops. D. left, raising the equilibrium price. Because the demand for crops is price inelastic, a higher price reduces the revenue that farmers received from selling their crops.
B
Is the demand for agricultural products elastic or inelastic? Why? The demand for agricultural products is A. inelastic because such products are luxuries. B. inelastic because such products represent a small share in the consumer's budget. C. inelastic because such products have many close substitutes. D. elastic because the markets for such products are defined very broadly. E. inelastic because they are perishable products.
B
Suppose a study shows that the demand for Nike shoes is more elastic than the demand for all shoes. What could be a likely explanation for this? The demand for Nike shoes could be more elastic than the demand for all shoes because A. Nike shoes are less costly. B. Nike shoes have more close substitutes. C. Nike shoes are more broadly defined. D. Nike shoes are consumed over a shorter period of time. E. Nike shoes are more of a necessity.
B
Suppose the demand for a product increases. What will be the effect on the market equilibrium price and quantity if supply is infinitely elastic? If supply is infinitely elastic, then A. the equilibrium price will not change and the equilibrium quantity will not change. B. the equilibrium price will not change and the equilibrium quantity will increase. C. the equilibrium price will increase and the equilibrium quantity will increase. D. the equilibrium price will not change and the equilibrium quantity will decrease. E. the equilibrium price will decrease and the equilibrium quantity will decrease.
B
The wrist watch industry in a country is not very competitive. There are limited brands available and the existing firms use their market power to keep prices high. Envy, one of the leading brands in the market, is planning to increase the price from $1,000 to $1,100 per watch. The firm is expecting the quantity demanded to fall by only 7 percent. However, after the price is increased to $1,100, quantity demanded actually declined by 12 percent. Sonia, a student of economics, knows that the average income level in this country has increased over the last year. When actual sales of Envy watches turn out to be lower than anticipated, she concludes that the income elasticity of demand for Envy watches is negative. Her conclusion is flawed because A. she is assuming that rival firms have reduced the price of their watches. B. she is confusing between price elasticity of demand and income elasticity of demand. C. she is assuming that the government of this country does not import watches. D. she is ignoring the fact that the cost of production of Envy watches could be high. E. she is confusing between consumer and producer surplus.
B
When demand curves intersect, the curve with the larger slope in absolute value (the steeper demand curve) is more elastic. A. True B. False
B
When demand increases, equilibrium price will rise ____________ when supply is _________ elastic. A. more; more B. more; less C. less; less D. None of the above. Supply elasticity does not matter when determining the effect of a shift in demand on the equilibrium price.
B
What is the midpoint method for calculating price elasticity of demand? The midpoint method for calculating price elasticity of demand is: A. the change in quantity divided by the average of the initial and final quantities divided by price. B. the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices. C. the average of the initial and final quantities divided by the average of the initial and final prices. D. the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the final price. E. the change in quantity divided by the final quantity divided by the change in price divided by the final price. How else can you calculate the price elasticity of demand? A. Price elasticity of demand can be calculated using initial values for price and quantity. B. Price elasticity of demand can be calculated using final values for price and quantity. C. Price elasticity of demand can be calculated by finding the slope of the demand curve. D. Both a and b. E. All of the above. What is the advantage of the midpoint method? A. The midpoint formula is easier to calculate. B. The midpoint formula will give the same value as the price elasticity of demand when using the initial price and the initial quantity. C. The midpoint formula will give the same value as the price elasticity of demand when using the higher price and the higher quantity. D. The midpoint formula will give the same value as the price elasticity of demand when using the higher price and the lower quantity. E. The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.
B, D, E
One study found that the price elasticity of demand for soda is -0.78, while the price elasticity of demand for Coca-Cola is -1.22. The price elasticity of Coca-Cola is (interpret the absolute value of these elasticities, i.e., ignore the minus sign): A. greater than it is for soda as a product because soda is an inferior good. B. less than it is for soda as a product because there are more substitutes for Coca-Cola than soda. C. greater than it is for soda as a product because there are more substitutes for Coca-Cola than soda. D. less than it is for soda as a product because Coca-Cola usually has a higher price.
C
The demand for agricultural products is inelastic, and the income elasticity of demand for agricultural products is low. How do these facts help explain the disappearing family farm? The family farm has been disappearing because A. the demand for food has not increased proportionally with increases in income, and increases in the supply of food have resulted in food prices increasing by less than income. B. the demand for food has not changed with increases in income, and increases in the supply of food have resulted in significant increases in food prices. C. the demand for food has not increased proportionally with increases in income, and increases in the supply of food have resulted in significant decreases in food prices. D. the demand for food has decreased with increases in income, and increases in the supply of food have resulted in significant decreases in food prices. E. the demand for food has decreased with decreases in income, and increases in the supply of food have resulted in significant decreases in food prices.
C
When XYZ firm entered the market for good A two years back, it kept the price of its product low to attract customers away from its leading competitor. The firm has now established itself and has a market share of 20 percent. The management of XYZ is planning to increase price of A from the current $6 per unit to $7 per unit. Timothy Walters, the marketing head, however, feels this is not a good idea because it will reduce quantity demanded drastically from the current 1,200 units to 900 units. His colleague and the head of the sales department, Jake Mayers, feels that the quantity demanded would only decline by 250 units. According to Jake, the firm can afford to increase the price because even after the price increase they would still have significant market share. Timothy and Jake most likely agree with which of the following? A. The total revenue will increase even if the price rises by $1. B. The market share of XYZ will increase in the near future. C. The demand for good A is elastic. D. The demand curve for A will shift to the left after the price increase. E. The equilibrium market price is less than $6.
C
When XYZ firm entered the market for good A two years back, it kept the price of its product low to attract customers away from its leading competitor. The firm has now established itself and has a market share of 20 percent. The management of XYZ is planning to increase price of A from the current $6 per unit to $7 per unit. Timothy Walters, the marketing head, however, feels this is not a good idea because it will reduce quantity demanded drastically from the current 1,200 units to 900 units. His colleague and the head of the sales department, Jake Mayers, feels that the quantity demanded would only decline by 250 units. According to Jake, the firm can afford to increase the price because even after the price increase they would still have significant market share. Which of the following is most strongly supported by the information above? A. Jake thinks the leading rival firm will gain all the customers that XYZ loses due to the price rise. B. Timothy estimates a 22% fall in quantity demanded in response to the $1 increase in price. C. Timothy thinks the demand curve faced by the firm is flatter than what Jake imagines it to be. D. XYZ is operating in the inelastic portion of the demand curve. E. Jake thinks that the demand curve faced by the firm is unit elastic.
C
An article in the Wall Street Journal used the headline "Procter & Gamble, in a Strategy Shift, Moves to Raise Prices" and the sub-headline "Company would seek to push through large price increases on Pampers diapers and Bounty paper towels." a. The article notes that Pampers and Bounty are two of Procter & Gamble's (P&G's) most popular brands. Is that fact relevant to P&G's decision to raise prices? A. The fact that Pampers and Bounty are P&G's most popular brands is not relevant to P&G's decision to raise prices. B. P&G apparently believes that the demand curves for these goods are price elastic because raising the prices of goods that have price elastic demand will increase the firm's total revenue. C. P&G apparently believes that the demand curves for these goods are price inelastic because raising the prices of goods that have price inelastic demand will increase the firm's total revenue. D. P&G apparently believes that the demand curves for these goods are unit-elastic because raising the prices of goods that have unit-elastic demand will increase the firm's total revenue. b. The article also states, "As the biggest player, P&G tends to drive industrywide pricing moves." What does the article mean by "industrywide pricing moves"? Would competitors raising their prices make the demand for Pampers more elastic or less elastic? A. "Industrywide pricing moves" are price changes that are made by most firms in an industry at about the same time. Competitors' raising their prices will make the demand for Pampers and Bounty less elastic than if the competitors don't raise their prices. B. "Industrywide pricing moves" are price changes that are ignored by most firms in an industry. Competitors' raising their prices will make the demand for Pampers and Bounty more elastic than if the competitors don't raise their prices. C. "Industrywide pricing moves" are price changes that are ignored by most firms in an industry. Competitors' raising their prices will make the demand for Pampers and Bounty less elastic than if the competitors don't raise their prices. D. "Industrywide pricing moves" are price changes that are made by most firms in an industry at about the same time. Competitors' raising their prices will make the demand for Pampers and Bounty more elastic than if the competitors don't raise their prices.
C, A
In 2019, the entrance fee into Yellowstone National Park in northwestern Wyoming was $35 for a private, noncommercial vehicle; $30 for a motorcycle or a snowmobile; and $15 for each visitor entering on foot or riding a bicycle. The fee provides the visitor with a 7-day entrance permit into Yellowstone and nearby Grand Teton National Park. The demand for entry into Yellowstone National Park for visitors in private, noncommercial vehicles is A. perfectly inelastic because the prospective park visitors will enter the park no matter what the cost of the entry fee. B. perfectly elastic because the prospective park visitors will refuse to enter the park if the entry fee is raised even by one cent. C. elastic because when the price is high and the quantity demanded is low, demand is elastic. D. unit elastic as the prospective park visitors will want to go to the park regardless of the entrance fee. Of the three ways to enter the park—in a private, noncommercial vehicle; on a motorcycle; and by foot, bike, or ski—which way would you expect to have the largest price elasticity of demand, and which would you expect to have the smallest price elasticity of demand? A. The private, noncommercial vehicle has the largest price elasticity of demand and visitors 16 and older entering by foot, bike, ski, etc. have the smallest price elasticity of demand. B. The private, noncommercial vehicle has the smallest price elasticity of demand and visitors 16 and older entering by foot, bike, ski, etc. have the largest price elasticity of demand. C. The snowmobile or motorcycle has the largest price elasticity of demand and visitors 16 and older entering by foot, bike, ski, etc. have the smallest price elasticity of demand. D. The private, noncommercial vehicle has the largest price elasticity of demand and snowmobile or motorcycle has the smallest price elasticity of demand.
C, A
Economist X. M. Gao and two colleagues have estimated that the cross-price elasticity of demand between beer and spirits is 0.15. If so, then beer and spirits are ___________. Gao and colleagues have estimated that the cross-price elasticity of demand between beer and wine is 0.31. If the price of wine increases by 10 percent, then the quantity of beer demanded will _________ by ________%. In addition, Gao and colleagues have estimated the income elasticity of demand for beer to be −0.09. If so, then beer is A. a normal good that is a necessity. B. a normal good that may be a luxury or a necessity. C. a luxury that may be a normal good or an inferior good. D. an inferior good. E. a normal good that is a luxury.
D
In 2018, Amazon raised the annual price to subscribe to its Amazon Prime service from $99 to $119. An article on a business website commented that "Amazon likely sees many ways to spend $2 billion in incremental revenue. (That's the additional $20 multiplied by 100 million Prime customers )." Is the analyst correct that Amazon will receive an additional $2 billion in revenue as a result of this price hike? A. Yes. Amazon will receive an additional $2 billion in revenue as a result of this price hike, but only if the demand curve is perfectly elastic. B. Yes. Total revenue equals price×quantity demanded, so Amazon will receive $20×100 million=$2 billion in additional revenue as a result of the price hike. C. No. Amazon will receive more than $2 billion in additional revenue due to the multiplier effect. D. No. At a higher price of $119, quantity demanded for Amazon Prime services will decrease, so the total revenue will increase by less than $2 billion.
D
Jacob Goldstein, a correspondent for National Public Radio, discussed the effect that a tax on sugared soft drinks would have on consumers: "How much would a tax drive down consumption? Economists call this issue "price elasticity of demand"—how much demand goes down as price increases..." Briefly explain whether you agree with Goldstein's definition of price elasticity of demand. A. Disagree, because price elasticity of demand refers to equilibrium changes in price and quantity. B. Agree, because price elasticity of demand refers to the absolute effect of a tax on the quantity consumed. C. Agree, because price elasticity of demand refers to absolute changes in price and quantity. D. Disagree, because price elasticity of demand refers to percentage changes in price and quantity demanded.
D
Over the past 30 years, the price of oil has been relatively unstable, fluctuating between $11.00 and well over $100 per barrel. Which of the following potentially contributes to oil-price instability? Oil prices are relatively unstable because A. the market for oil is relatively competitive. B. the demand for oil is elastic. C. OPEC has been successful in controlling the quantity of oil its members supply. D. the supply of oil is inelastic. E. the income elasticity of demand for oil is negative.
D
The U.S. Energy Information Administration estimates that the price elasticity of demand for gasoline in the United States is −0.02 in the short run. a. If the estimate is accurate, a ______% increase in the price of gasoline would be required to reduce the quantity of gasoline demanded by 1 percent. b. Would you expect that the price elasticity of demand for gasoline in the long run is larger or smaller (in absolute value) than −0.02? The price elasticity of demand for gasoline is A. is price elastic in both the short and long run as many substitutes for gasoline exist. B. equally price inelastic in both the short and long run as there are not many substitutes for gasoline. C. more price inelastic in the long run than in the short run because in the short run more substitutes for gasoline may become available. D. more price elastic in the long run than in the short run because in the long run more substitutes for gasoline may become available.
D
The price elasticity of demand in the United States for crude oil has been estimated to be −0.061 in the short run and −0.453 in the long run. The demand for crude oil A. is equally price inelastic in both the short and long run as there are not many substitutes for crude oil. B. is more price inelastic in the long run than in the short run because in the short run a substitute for crude oil may be found. C. is price elastic in both the short and long run as there exists many substitutes for crude oil. D. is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found.
D
A study of consumers in Chile found that the cross-price elasticity of demand between soda and milk was 0.25, while the cross-price elasticity of demand between soda and candy and other sweet snacks was 0. What is the relationship in Chile between soda and milk? Briefly explain. A. Complement, because the cross-price elasticity of demand is positive. B. Complement, because the cross-price elasticity of demand is less than 1 in absolute value. C. Substitute, because the cross-price elasticity of demand is less than 1 in absolute value. D. Substitute, because the cross-price elasticity of demand is positive. What is the relationship in Chile between soda and candy? Briefly explain. A. Substitute, because the cross-price elasticity of demand is less than 1 in absolute value. B. Substitute, because the cross-price elasticity of demand is zero. C. Unrelated, because the cross-price elasticity of demand is zero. D. Complement, because the cross-price elasticity of demand is less than 1 in absolute value. If the Chilean government increases the tax on soda enough that its price increases by 10 percent, the quantity of milk demanded will _____________ by ______ percent. If the Chilean government increases the tax on soda enough that its price increases by 10 percent, the quantity of candy demanded will A. not change. B. increase by 10 percent. C. increase by 2.5 percent. D. decrease by 10 percent.
D, C, A
What is the formula for the price elasticity of demand? The formula for the price elasticity of demand is A. the percentage change in price divided by the percentage change in quantity demanded. B. the percentage change in quantity supplied divided by the percentage change in quantity demanded. C. the change in price divided by the change in quantity demanded. D. the change in quantity demanded divided by the price. E. the percentage change in quantity demanded divided by the percentage change in price. Why isn't elasticity just measured by the slope of the demand curve? A. The slope of the demand curve changes along the curve. B. The slope can change dramatically, depending on the units chosen for quantity and price. C. The slope of the demand curve is often unknown. D. Price elasticity of demand is the same as the slope of the demand curve. E. The slope of the demand curve is negative.
E, B
MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be −2.5 and the price elasticity of demand for all types of breakfast cereals to be −0.9. The demand for Post Raisin Bran cereal is _________, and the demand for all types of breakfast cereals is _______. Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast cereals? Post Raisin Bran cereal A. has more substitutes available. B. is consumed over a shorter period of time. C. is defined more broadly. D. is a smaller share of a consumer's budget. E. is more of a necessity.
elastic, inelastic A
In 2019, after Netflix increased the price of its most popular streaming plan from $10.99 per month to $12.99 per month, competing service Hulu cut the price of its basic plan from $7.99 per month to $5.99 per month. What was Hulu assuming about the price elasticity of demand for its basic plan? Why did Netflix's decision to raise the price of its most popular plan affect Hulu's pricing strategy? Hulu assumed that the demand for its services was price _______. Lowering the price of its streaming service was intended to ______ its total revenue. Hulu dropped its prices when Netflix raised its because Hulu considers its service as a ______________ to Netflix's streaming services.
elastic, raise, substitute
When lettuce prices doubled, from about $1.60 per head to about $3.20, the reaction of one consumer was quoted in a newspaper article: "I will not buy [lettuce] when it's $3.20 a head," she said, adding that other green vegetables can fill in for lettuce. "If bread were $5 a loaf we'd still have to buy it. But lettuce is not that important in our family." For this consumer's household, which product has the higher price elasticity of demand: bread or lettuce? _________. For this consumer's household, is the cross-price elasticity of demand between lettuce and other green vegetables positive or negative: __________.
lettuce, positive