Unit 3-Chapter 6

Question 1

elasticity is a measure that shows

Answer 1

how one economic variable responds to changes in another economic variable

Question 2

which demand curve is more elastic

Answer 2

the flatter one

Question 3

if demand is perfectly elastic, then what is the impact of an increase in price?

Answer 3

a decrease in quantity demanded to zero

Question 4

which of the following is the most important determinant of price elasticity of demand

Answer 4

the availability of substitutes

Question 5

if a good takes only a small fraction of a consumer’s budget, then this good tends to have

Answer 5

a less elastic demand

Question 6

refer to the figure below. in which of the graphs does a price decrease lead to an increase in total revenue

Answer 6

the graph on the right

Question 7

when demand is price elastic, what is the relationship between price and total revenue

Answer 7

they move in opposite directions

Question 8

If an increase in the price of a complement good leads to a decrease in the quantity demanded of the good in question, the cross-price elasticity of demand is:

Answer 8

negative

Question 9

If the quantity demanded of a good is very responsive to changes in income (or has an income elasticity coefficient greater than one), the good is considered:

Answer 9

a luxury

Question 10

Refer to the figure below. After an increase in wheat production, which of the following two factors best explain the substantial decline in wheat prices?

Answer 10

an inelastic demand for wheat and low income elasticity

Question 11

Which of the following statements applies to price elasticity of supply?

Answer 11

It measures the responsiveness of the quantity supplied to a change in price.
The percentage change in the quantity supplied of a product divided by the percentage change in the product’s price.
It is a positive number.
All of the above!!!!!!!!!!!!!!

Question 12

If price elasticity of supply is less than one, the demand for the good in question is:

Answer 12

price inelastic

Question 13

If a supply curve is close to perfectly elastic, then a very small increase in price generates:

Answer 13

a proportionally larger increase in quantity supplied

Question 14

When demand is price-inelastic, what is the relationship between price and total revenue?

Answer 14

they move together

Question 15

If an increase in the price of a substitute leads to an increase in quantity demanded, the cross-price elasticity of demand is

Answer 15

positive

Question 16

necessities tend to have more inelastic demands than luxuries

Answer 16

true

Question 17

when there are few substitues available for a good, demand tends to be relativitely INelastic

Answer 17

true

Question 18

if a firms goals is to maximize revenue, it will price its product to correspond to the unit-elastic segment of its demand curve

Answer 18

true

Question 19

when audrina raised the price of her homemade cookies, her total revenue increased. this suggests that the demand for audrina’s cookies is elastic

Answer 19

false

Question 20

the price elasticity of supply is calculated as the change in supply divided by the change in price

Answer 20

false

Question 21

if the demand for a product is elastic, the quantity demanded changed by a larger percentage than the percentage change in price

Answer 21

true

Question 22

if when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

Answer 22

false

Question 23

demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Answer 23

true

Question 24

in recent years, the prices of new domestically produced cars have been falling. Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel. This information suggests that the cross-price elasticity between new cars and used, and the cross-price elasticity between new cars and bus travel are negative.

Answer 24

false

Question 25

list the 5 key determinants of price elasticity of demand and explain how each determinant indicated if demand tends to be elastic or inelastic.

Answer 25

availbility of close substitutes
passage of time
luxuries versus necessities
definition of the market
share of a good in a consumer's budget

Question 26

what does price elasticity of demand measure? when is deamdn elastic? inelastic? unit elastic?

Answer 26

price elasticity of demand measures the responsiveness of the quantity of a product demanded is greater than the percentage change in price. demand is inelastic when the percentage change in quantity demanded is greater than the percentage change in price.

Question 27

explain the relationship between price elasticity of demand and total revenue.

Answer 27

if demand is elastic, then an increase in price reduced total revenue, and a decrease in price increases total revenue.
If demand is inelastic, an increase in price increases total revenue and a decrease in price decreases total