Microeconomics Chapter 6
If the estimated price elasticity of demand for foreign travel is 4:
a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.
For a normal demand curve, the price elasticity of demand will:
always be negative.
If the price of a good increases by 15% and quantity demanded changes by 20%, then the price elasticity of demand is equal to:
approximately 1.33.
If a good is a necessity with few substitutes, all other things equal, then demand will tend to:
be less price-elastic.
If a good is a necessity with few substitutes, then demand will tend to:
be relatively price-inelastic.
The pair of items that is likely to have the HIGHEST cross-price elasticity of demand is:
coffee and tea.
The pair of items that is likely to have the LARGEST positive cross-price elasticity of demand is:
coffee and tea.
If the price of chocolate-covered peanuts increases and the demand for strawberry-flavored soft drinks decreases, this indicates that these two goods are _____ goods.
complementary
Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. We know that the:
cross-price elasticity between cereal and milk is -2.
The price elasticity of demand is measured by _____ the percentage change in _____ the percentage change in _____.
dividing; quantity demanded by; price
When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 160. In this price range, the demand for chocolate-covered peanuts is _____, and total revenue will _____ when the price increases.
elastic; decrease
A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:
equal to 1.
A good is likely to have an inelastic demand curve if the:
good has few available substitutes.
If two goods are substitutes, their cross-price elasticity of demand is:
greater than 0.
A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student in about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is:
highly inelastic
You manage a nightclub, and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that your bouncer thinks the demand for drinks is _____ and your bartender thinks the demand for drinks is _____.
inelastic; elastic
If demand _____ and the University of Michigan increases the price of football tickets, revenues will increase.
is price-inelastic
We predict the long-run price elasticity of demand for gasoline to be _____ the short-run price elasticity of demand for it.
larger than
Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue on the assumption that consumer demand is:
less price-elastic as departure time approaches.
If two goods are complements, their cross-price elasticity of demand is:
less than 0.
If the price of emergency visits to the doctor rose, we would expect:
only a slight decline in the number of emergency visits to the doctor.
Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is:
price inelastic.
Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:
price inelastic.
If someone did not regard health care as very important, often using home remedies and other substitutes, his or her demand curve for health care would most likely be more _____ than that of other people.
price-elastic
If the price of a good increases by 15% and the quantity demanded falls by 20%, demand is:
price-elastic.
In general, we predict demand for Gala apples to be:
price-elastic.
If the price elasticity of demand is calculated to be 0.75, then demand is:
price-inelastic.
When a public transit system (such as a subway or bus line) raises its fares, its total revenue may increase. This suggests that demand is:
price-inelastic.
An important determinant of the price elasticity of demand is the:
proportion of the household budget spent on the good.
If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.
quantity; price; decrease
If the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases, this indicates that these two goods are _____ goods.
substitute
If your purchases of good A increase from 9 units per year to 11 units per year when the price of good B increases from $8 to $12, all other things equal, for you, good A and good B are considered _____ goods.
substitute
If you know the cross-price elasticity between two goods is positive, then it suggests that the two goods are:
substitutes.
Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. For Raina, pencils and pens are _____, and the cross-price elasticity of demand is _____.
substitutes; 2
The price elasticity of demand for a good will tend to be larger:
the longer the time available to adjust to price changes.
The university hopes to raise more revenue by increasing parking fees. This plan will work only if:
the price effect is larger than the quantity effect.
Total revenue is:
the price of a good times the quantity of the good that is sold.
Which factor does NOT determine the price elasticity of demand?
the slope of the supply curve
Determining the price elasticity of demand does NOT involve:
the slope of the supply curve.
What is the price elasticity of demand (using the midpoint formula) between $1.50 and $1.25?
1.22
When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____.
$209; $204.25
The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.
0.2; inelastic
What is the price elasticity of demand (using the midpoint formula) between $0.75 and $0.50?
0.33
If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity demanded increases from 190 bags to 210 bags, then the price elasticity of demand (by the midpoint method) is:
0.5.
A restaurant manager has estimated that the price elasticity of demand for meals is 2. If the restaurant increases menu prices by 5%, she can expect the number of meals sold to decrease by _____ and total revenue to _____.
10%; fall
If the price of chocolate-covered peanuts decreases from $1.05 to $0.95 and the quantity demanded increases from 180 bags to 220 bags, then the price elasticity of demand (by the midpoint method) is:
2.
The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease quantity demanded to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks?
3
What is the price elasticity of demand (using the midpoint formula) between $2.25 and $2.00?
5.67
Egg producers know that the price elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:
50%
There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, all other things equal, you would expect the demand for:
Bayer aspirin to be more price-elastic than is the demand for medical examinations.
If a good has a price-inelastic demand, then which statement is NOT likely to be characteristic of this good?
It has many substitutes.
The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged?
Total revenue will rise.
