MICRO Test 2

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Price elasticity of demand is influenced by the... income spent on a good or service

proportion of

Cross-price elasticity of demand is a measure of the effect of a change in the...

price of one product on the quantity demanded of another

How do you calculate revenue?

Price x Quantity

Using absolute values, in the elastic range of the demand curve:

% change in the quantity demanded > % change in price

When the price of candy bars increased from $0.45 to $0.55, the quantity demanded changed from 21,000 per day to 19,000 per day. In this price range, the price elasticity of demand coefficient (based on the midpoint formula) for candy bars is

-0.5

What does the supply curve look like in the immediate time period?

It is a vertical line

What is the midpoint formula?

M= (x1+x2/2, y1+y2/2)

Which of the following statements is true of a linear demand curve?

When going from high prices to low prices, demand becomes more inelastic

Income elasticity

a measure of how responsive demand is to a change in consumer income

Define price elasticity

a measure of how responsive quantity supplied is to a change in price

When interpreting the Ed value as either elastic or inelastic, we look at the

absolute value of the Ed coefficient (dropping the negative sign)

The cross-price elasticity of demand between product X and product Y is -1.2. It can be inferred that X and Y are

complements

Which of the following uses negative and positive values to asses whether goods are substitutes or complements?

cross-price elasticity

If Es= 4.25, the supply is:

elastic

If IEdI = .15, the demand is:

inelastic

When there are few substitutes for a good or service, demand tends to be relatively more

inelastic

The greater the change in price the (more or less) reliable elasticity estimate is going to be

less

Determine whether the income elasticity of demand is likely to be positive or negative for simple meals at home

negative

The price elasticity of demand is a negative number because

of the law of demand

What does the elasticity calculation use?

percentage change in price and quantity

Slope uses changes in...

price and quantity

Answer the next question based on information in the following table. Product Percentage Change in Income Percentage Change in Quantity Demanded W −1 −1 X +6 +3 Y −1 +1 Z +4 +8 Which product would be an inferior good?

product Y

Price elasticity of supply is a measure of how responsive

quantity supplied is to a change in price

The demand schedules for such products as eggs, bread, and electricity tend to be

relatively inelastic

Demand is generally

relatively more elastic in the long run than in the short run

The price elasticity of supply measures how

responsive the quantity supplied of X is to changes in the price of X

Which would have a relatively more elastic demand curve: electricity or restaurant meals?

restaurant meals

The slope of a linear demand curve is

the change in price divided by the change in quantity demanded

What are the time periods associated with a set of supply curves?

the immediate period, the short run, and the long run

Supply is perfectly inelastic when the value of the price elasticity of supply is equal to

zero

Use the data in the table below to answer the following question. Price Quantity Demanded $20 12 18 17 16 20 14 24 12 30 10 36 8 40 6 44 4 48 The price elasticity of demand (based on the midpoint formula) when price increases from $10 to $12 is

-1

Demand is said to be inelastic when

a reduction in price results in a decrease in total revenue

Determine whether the income elasticity of demand is likely to be positive or negative for airline tickets

positive

Economists distinguish among the immediate period, the short run, and the long run by noting that

supply is most elastic in the long run and perfectly inelastic in the immediate period

What is the formula for price elasticity of demand?

...

The percentage change in the quantity demanded of one good divided by the percentage change in the price of another good is the...

cross-price elasticity of demand

A price elasticity of demand of -0.50 means that if the price increased by 1%, the quantity demanded will

decrease by .50%

Economists find elasticity useful because it...

has no units attached to it and can be used to compare elasticities across different goods and countries

The time period in which producers cannot increase their use of economic resources to increase quantity supplied is the

immediate period

Answer the next question on the basis of the following demand schedule. Price Quantity Demanded $6 1 5 2 4 3 3 4 2 5 1 6 The price elasticity of demand is unit-elastic (based on the midpoint formula)

in the $4 to $3 price range only

A price elasticity of demand of -0.75 means that if the price decreases by 10%, the quantity demanded will ____ by ____ %.

increase, 12.5

What type of good has a direct relationship between the demand for the good and income?

normal good

Price elasticity of supply is a positive number because

of the law of supply

With cross-price elasticity of demand:

positive value indicates substitutes, and negative value indicates complements

Which would have a relatively more elastic demand curve: basic cable television or premium cable channels?

premium cable channels

The... of a linear demand curve is constant along the curve

slope

A relationship exists between...

slope and elasticity, but they are not the same thing

If the price of good A increases and generates an increase in the demand for good B, then the two goods are

subsitutes

The more time passes,

the more elastic the demand for a good becomes

When consumers have more... to adjust, demand becomes relatively more elastic

time


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