Chapter 6,11,12 Flashcards
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quality demanded, then the demand for golf balls is
Relatively elastic
For consumers who opt to pay a $10 monthly fee to have unlimited texting on their cell phones, but choose not to pay a $5 monthly fee to have unlimited call minutes, the unlimited texting option has a _____ than the unlimited minutes option.
Lower price elasticity of demand
Suppose the value of the price elasticity of supply is 4. What does this mean?
A 1 percent increase in the price of the good causes quality supplied to increase by 4 percent.
Refer to figure 6-1. A perfectly elastic demand curve is shown in
Panel B
If demand is perfectly inelastic, the absolute value of the price elasticity of demand is
Zero
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
1.62
At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula.
0.9
Total revenue equals
Price per unit times quantity sold.
Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve.
It is elastic at high prices and inelastic at low prices.
Economists estimated that the price elasticity of beer is 0.23 and the income elasticity of beer is -0.09. This means that
An increase in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.
Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark, decided two years ago to bolster its academic offerings, promising students at least three hands on experiences outside the classroom, including research, internship and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Based on the information above, the demand for Hendrix College education is
Relatively elastic
If the cross price elasticity of demand for computers and software is negative, this means the two goods are
Complements
Refer to figure 6-1. The demand curve on which elasticity changes at every point is given in
Panel C
Price elasticity of demand measures
How responsive suppliers are to price changes
Refer to figure 6-4. The inelastic segment of the demand curve.
Lies below the midpoint of the curve
If demand is inelastic, the absolute value of the elasticity of demand is
Less than one
If the demand for a life saving drug was perfectly inelastic and the price doubled, the quantity demanded would
Remain constant
Refer to figure 6-4. Which of the following statements is true about the price elasticity of demand?
The elastic portion of a straight line downward sloping demand curve corresponds to the segment above the midpoint.
Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? Use the midpoint formula.
2.69
When demand is elastic, a fall in price causes total revenue to rise because
The increase in quantity sold is large enough to offset the lower price.
For people who live near a bus route, a subway station, or a computer rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross price elasticity of the demand between gasoline and public transportation is
Positive
Jaycee jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.
0.6
Price elasticity of supply is used to gauge
How responsive suppliers are to price changes
Suppose the value of the price elasticity of demand is 3. What does this mean?
A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
Refer to figure 6-7. Use the midpoint formula to calculate the value of the price elasticity of supply between g and h?
2
A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is
Elastic
Suppose the cross price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?
A 1 percent increase in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption
If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is
Elastic
Lars year, sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and sefton purchased 80 pounds of potatoes. All else constant, sefton income elasticity of demand for potatoes is
Negative, so sefton considers potatoes to be an inferior good
Suppose the California nurse Union successful secured a 12 percent increase in the wages of registered nurses. If a hospital responses by reducing the quantity of registered nurses hired and increasing the quantity of physicians assistants hired, what conclusion can you draw?
The cross price elasticity of demand between registered nurses and physicians assistance is positive
Refer to figure 6-1. A perfectly inelastic demand curve is shown in
Panel A
The price elasticity of supply is equal to
The percentage change in quantity supplied divided by the percentage change in price.
Refer to figure 6-4. At the midpoint of the demand curve, in absolute value.
The price elasticity coefficient is one
If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is
Relatively inelastic
Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?
Sales revenue rises
If the price elasticity of demand for canned soup is estimated at 1.62. What happens to sales revenue if the price of canned soup rises?
It falls
Refer to figure 6-3. Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f.
3.125
Cross price elasticity of demand is calculated as the
Percentage change in quantity demanded of one good divided by percentage change in price of a different good.
Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is welling to pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers?
It is perfectly elastic
The absolute value of the price elasticity of demand for stork ice cream of 4. Suppose you’re told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?
2.5 percent
Refer to figure 11-9. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?
Combination f:40 hours of labor and 24 units of capital
Refer to table 11-3. What is the average total cost of production when the firm produces 120 lanterns?
$14
Which of the following costs will not change as output changes?
Total fixed cost
If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is
2 chairs
Marginal cost is the
Additional cost of producing an additional unit of output.
Economic costs of production differ from accounting costs in that
Economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.
Maximizing the level of output for a given total cost of production
Is equivalent to minimizing cost for a given level of output
If, when a firm doubles all its inputs, its average cost of production decreases, then production displays
Economics of scale
An expansion path shows
The least cost combination of inputs for each level of output
Which of the following is a factor of production that generally is fixed in the short run?
Capital
Refer to figure 11-7. The lines shown in the diagram are isocost lines. Which of the following shows a decrease in the price of capital while the price of labor remains unchanged?
The movement from BF to AF
If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firms average fixed cost at that level of output?
$15
What is the firm’s total cost when it is minimizing its cost of production for 1800 units of output?
360
Higher isocost lines correspond to higher
Total costs of production
Which of the following are implicit costs for a typical firm?
Opportunity costs of capital owned and used by the firm