Module 2 ECOn 209

Choose the correct price-elasticity label for each pair of goods. Assume this involves a demand for the total of all people currently residing in Canada, the US, and Mexico.1.Cosmetic surgery is __________ Emergency surgery2. A cheeseburger at 7 PM at a 24 HR restaurant is ______ a cheeseburger at 2 am at a 24 HR restaurant.3. monthly electricity consumption is _________ yearly electricity consumption.4.All cars are _______ red cars.5. The wall street journal is _________ The wall street journal at the airport

1. More elastic than2. More elastic than3. Less elastic than4. Less elastic than5. More elastic than

Two products have a cross-price elasticity of demand of 1.5. Based on this value of cross-price elasticity, which products are they most likely to be? a brand of tea and a brand of sugar a brand of hot dog and a brand of hot dog bun a brand of juice and a brand of computer two competing brands of soft drinks

1.5>0= substitute, option D

If income rises by 10% and the quantity demanded of an item rises by 20%, the income elasticity of demand for this item is: 2. -2. 0.5. -0.5.

2

A normal good is a good: for which higher income causes an increase in demand. that is normally purchased by many consumers. that is only purchased by high-income consumers. for which higher income causes a decrease in demand.

A

Income elasticity of demand measures how responsive the: quantity demanded of a good is to changes in income. quantity demanded of one good is to changes in demand for another good. price of good is to price changes of another good. quantity supplied of one good is to price changes of another good.

A

Paint and paintbrushes are complements. A decrease in the price of paintbrushes will cause the demand for: paint to increase. paint to decrease. paintbrushes to decrease. both paint and paintbrushes to decrease.

A

Your university hopes to raise more revenue by increasing student housing fees. This plan will work only if the percent: rise in price is larger in magnitude than the percent decline in quantity demanded. rise in price is smaller in magnitude than the percent decline in quantity demanded. decrease in price is smaller in magnitude than the percent decline in quantity demanded. decrease in price is larger in magnitude than the percent increase in quantity demanded.

A

The price elasticity of demand for an item is impacted by: whether or not the item is a necessity. the time available to adjust to price changes. the number of available substitutes. all of these options.

All

Total effect

An increase in quantity demands attributable to the combination of the income and substitution effect.

Income effect

An increase in quantity demands that are attributable to changes in purchasing power as the price of a good falls.

Substitution effect

An increase in quantity demands that comes from consumers having a greater incentive to buy a good whose price is relatively lower

Demand for soft drinks outside an airport is more elastic than inside of the airport because: necessities have less elastic demand. fewer choices mean more inelastic demand. specific brands tend to have more elastic demand than categories of goods. more choices make demand more elastic.

B

Milk is an inexpensive good that most would consider a necessity. You would therefore expect its demand to be: elastic. inelastic. neither elastic nor inelastic. driven by the supply price.

B

Suppose the percent change in the quantity demanded for water for any price change is zero. The demand curve for water is _____, and the price elasticity of demand is perfectly _____. vertical; elastic vertical; inelastic horizontal; elastic horizontal; inelastic

B

Suppose the price elasticity of demand for lemons is 1.8. If a fall frost destroys one-third of the nation's lemon crop, how will that affect total revenue from lemons, all other things equal? Total revenue will rise. Total revenue will fall. Total revenue will remain unchanged. The information is insufficient to answer the question.

B

The Rational Rule for Buyers: entails that buyers compare the total benefit of all units of an item to the total cost of all units purchased . entails that buyers compare the benefit of buying an additional unit of an item to the cost of that item. only applies to buyers who are buying necessities as opposed to luxuries. entails that buyers compare the cost of production of an item to the price of the item.

B

Which statement BEST illustrates the law of demand? An increase in food prices encourages more individuals to buy more food, owing to scarcity. Consumers buy more iPhones because prices have fallen. Tesla produces more cars as prices increase. Fewer people visit Disneyland because incomes have fallen.

B

You have been appointed head of marketing for Barry's Younique Yachts. Barry, the CEO, is interested in determining whether offering his yachts at a lower price would increase the firm's revenue. He asks you for advice. Using your knowledge of elasticity, you should tell Barry that he should reduce his prices. Yachts are a necessity and therefore have a low price elasticity of demand. Thus, reducing prices would increase revenue. that he should reduce his prices. Yachts are luxury goods and therefore exhibit a high price elasticity of demand. Thus, reducing prices would increase revenue. that he should increase his prices. Demand for yachts is likely to be elastic because they are so much fun to drive. Thus, increasing prices would increase revenue. that he should increase his prices. Demand for yachts is perfectly inelastic, so a price increase will cause total revenue to increase.

B

Demand curves slope downward due to: the positive relationship between price and quantity demanded. buyers' perceptions that a fall in price means a fall in quality . the law of demand. stores lowering their prices.

C

Diminishing marginal benefit: does not affect a buyer's decision. is seen in the upward slope of a supply curve. is seen in the downward slope of a demand curve. means that consumers are willing to pay more for additional units of an item.

C

If an item is a necessity rather than a luxury, its demand curve will be: perfectly elastic. perfectly inelastic. relatively steep. relatively flat.

C

If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because sales revenue in the building industry will fall sharply. profits will fall by a greater amount in the long run than in the short run. buyers of steel are more sensitive to a price change if they have more time to adjust to the price change. buyers of steel are less sensitive to a price change if they have more time to adjust to the price change.

C

Macmillan Learning Which of the following could explain why the demand for table salt is inelastic? Salt is a rare commodity. Salt is a luxury for high-income consumers but a necessity for low-income consumers. Households devote a very small portion of their income to salt purchases. Salt is a luxury good.

C

Quantity demanded is the amount of a good: that a person is willing to buy at each price. that a person actually buys at the market price . that a person is willing to buy at a particular price. at which the opportunity cost of a good equals the marginal benefit.

C

The price elasticity of demand for fresh cilantro has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh cilantro crop, how will that affect total revenue from fresh cilantro, all other things equal? Total revenue will remain unchanged. Total revenue will fall. Total revenue will rise. The information is insufficient to answer the question.

C

The price of product A falls by 50%. As a result, the quantity demanded of product B rises by 50%. The cross-price elasticity of demand between product A and product B is _____, and they are _____. -0.75; complements -1.25; complements -1; complements 1.25; complements

C

The law of demand says that buyers demand lower prices. higher prices cause buyers to demand more. higher prices cause less demand. as the price of a good increases, buyers are willing and able to purchase less. as the price of a good decreases, buyers are willing and able to purchase less.

D

If the price of airline tickets rises, there will be a(n): increase in the demand for bus tickets but a decrease in the demand for train tickets. decrease in the demand for bus tickets but an increase in the demand for train tickets. increase in the quantity of airline tickets demanded. increase in the demand for both bus and train tickets.

D

Shifts in market demand curve can result from a change in the: price of a product. cost of production of an item. number of producers of an item in the market. type and number of buyers.

D

The income effect of an increase in the price of salmon refers to the relative price effect - salmon is more expensive compared to other types of fish - which causes the consumer to buy less salmon. is the change in the demand for other types of fish, say trout, that results from a decrease in purchasing power. is the change in the demand for salmon when income increases. refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant.

D

The law of demand says that, holding everything else constant, when the price of a good increases, the amount buyers buy will decrease, and when the price of a good decreases, the amount buyers buy will increase. To hold everything else constant means to use the ceteris paribus condition. If we change one of these things we were holding constant, which is the most likely result? producers will not know how much of a good to make a price ceiling will need to be implemented consumers will not change their purchasing behaviors demand for the good will either increase or decrease

D

Which of these scenarios does NOT illustrate the law of demand? When Kit-Kats are cheaper, Mary opts to buy more Kit-Kats. Darren buys two pairs of jeans when they are $40 each but only one pair when it is $60. Layla buys less tea when the price of tea rises. Freya buys more doughnuts when the price of doughnuts rises.

D

Demand is best described as the quantity of a good or a service that people will offer for sale at different possible prices. the quantity of a good or service that consumers will substitute when the price of a good changes. the total satisfaction that consuming a good provides people at different prices. the additional satisfaction derived from a quantity of goods and services obtained when income increases. the quantity of a good or a service that people are willing and able to purchase at different possible prices.

E

Identify the scenarios as examples of elastic, inelastic, or unit elastic demand. a. When Ruko, a device used to stream movies at home, increases prices by 42 percent, total revenue decreases by 65 percent. b. When Cinema Supreme decreases ticket prices by 19 percent, total revenue does not change. c. When Bluebox, a streaming service for foreign television shows and movies, increases its prices by 52 percent, total revenue increases by 28 percent.

a. elastic b. unit elastic c. inelastic