Micro Economics Chapter 5

The more substitutes that exist for a particular good, the __________ the price elasticity of demand.

Larger

Which of these demand curves shows a perfectly inelastic demand?

The demand curve on the left

For goods such as computer game consoles, if the price rises the quantity supplied will be greater:

The longer the time that elapses

What is the cross-price elasticity of demand for two goods that are unrelated?

Zero

Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent.

$3.62

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:

1.25

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20 percent. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?

10 percent and the total revenue of farmers will rise

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.

An increase, positive

Personal computers and computer display monitors are:

Complements

If the cross-price elasticity of demand between two products is -3.0, then the two products are:

Compliments

If the price elasticity of demand is 0.33 then demand is __________ .

Inelastic

The demand for a highly addictive drug is likely

Inelastic

If the supply of Good B is perfectly elastic and price falls the quantity supplied will:

Decrease to zero

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.

Elastic

If the price elasticity of supply is 0.4, then a 20 percent increase in price will __________ the quantity supplied by __________ percent.

Increase, 8.0

A perfectly inelastic supply curve:

Indicates the quantity supplied does not respond to a change in price

The price elasticity of supply always has a:

Positive value

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.

Price elasticity of demand

Which of the following goods is probably the most highly income elastic?

Private education

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good?

An inferior good

If the income elasticity of SUVs is greater than 1, what is the good considered?

A luxury

Along a linear, downward sloping demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another