demand is perfectly elastic with respect to price if price elasticity of demand is infinite

-Price elasticity of demand is thus infinite at every point along a horizontal demand curve, has a slope of zero

demand is perfectly inelastic with respect to price if price elasticity of demand is zero

-vertical demand curves, which means that its slope is infinite

-Price elasticity of demand is thus exactly zero at every point along the curve

the dollar amount that consumers spend on a product (*P* × *Q*) is equal to the dollar amount that sellers receive

the percentage by which a good’s quantity demanded changes in response to a 1 percent change in income

*P* represents

*Q* the

Δ*P* represents

a small change in the current price

Δ*Q *represents

the slope of the demand curve is equal to

Δ*P*/Δ*Q*, Δ*Q*/Δ*P*

The elasticity of demand for a given brand of ice cream is likely to be _____ than the elasticity of demand for ice cream in general.

-lower

-higher

higher

Reason:

Since there are more substitution possibilities for a given brand of ice cream than for ice cream in general, the elasticity of demand for a given brand of ice cream is likely to be higher than the elasticity of demand for ice cream in general.

Given that most people spend a relatively small share of their budget on pencils, we would expect the elasticity of demand for pencils to be relatively _____.

-high

-low

low

Reason:

The smaller the share of people's budget an item accounts for, the lower will be the price elasticity of demand.

Which of the following is the formula for the price elasticity of demand?

-Q/P×1/slope

-P/Q÷1/slope

-∆Q/∆P×1/slope

-P/Q×1/slope

If the price elasticity of demand for beer is 1.19, and the price of beer goes up by 1 percent, then the quantity of beer demanded will _____.

go up by 119 percent

go down by 119 percent

go up by 1.19 percent

go down by 1.19 percent

go down by 1.19 percent

Reason:

The elasticity of demand is the percentage change in quantity demanded that results from a 1 percent change in price. In this case, quantity demanded goes down since price goes up.

If the price elasticity of demand for wine is 1.00, then the demand for wine is _____.

inelastic

unit elastic

elastic

unit elastic

Reason:

If the price elasticity of demand equals 1, then demand is **unit elastic **with respect to price.

If the price elasticity of demand is infinite, then demand is

perfectly inelastic.

unit elastic.

perfectly elastic.

When a good has many close substitutes, the price elasticity of demand tends to be relatively _____.

high

low

Low-income families spend a greater share of their budget on electricity than do high-income families. Thus, we would expect the price elasticity of demand for electricity to be _____ for low-income families than for high-income families.

higher

lower

higher

Reason:

All else equal, the larger the share of a consumer's budget spent on a good, the higher will be the price elasticity of demand for that good.

If the price of lawnmowers goes up by 9 percent and the quantity of lawnmowers demanded falls by 5 percent, then the total expenditure on lawnmowers will

-increase

-decrease

-remain unchanged

increase.

Reason:

If the percentage increase in price is greater than the percentage decrease in quantity demanded, then total expenditure will increase.

In the figure (is a vertical line) demand is

Perfectly inelastic with respect to price

Unit elastic with respect to price

perfectly elastic with respect to price

In the figure (is a horizontal line), demand is:

perfectly elastic with respect to price.

perfectly inelastic with respect to price.

unit elastic with respect to price.

Suppose the demand for first-class airline tickets is inelastic with respect to price. If the price of first-class airline tickets decreases, then total expenditure will _____.

increase

decrease

stay the same

decrease

Reason:

If demand is inelastic with respect to price, total expenditure will decrease in response to a price decrease.

If the demand for first-class airline tickets is inelastic with respect to price, then if the price of first-class airline tickets increases, then total expenditure will _____.

Multiple choice question.

increase

stay the same

decrease

increase

Reason:

If demand is inelastic with respect to price, total expenditure will increase in response to a price increase.

Suppose your cousin makes cutting boards that he sells on Etsy.com. Can he increase his total revenue by increasing the price of his cutting boards?

Yes, if he charges more his revenue obviously will increase.

Yes, but only if the price elasticity of demand is greater than one.

Yes, but only if the price elasticity of demand is less than one.

Changes in price and changes in total expenditure move in the opposite direction when the price elasticity of demand is

less than zero.

greater than 1.

less than 1.

Suppose a local politician proposes that the price of lottery tickets be cut in half in order to reduce the total amount that people spend on lottery tickets. This plan will

-only be effective if the demand for lottery tickets is inelastic with respect to price.

-only be effective if the demand for lottery tickets is elastic with respect to price.

-surely be effective since total expenditure obviously will fall if lottery tickets are cheaper.

If the price elasticity of demand is less than 1 and price increases, then total expenditure will

stay the same.

decrease.

increase.

-0.33

3

0.33

-3

-0.33

Reason:

The cross-price elasticity of demand for spaghetti with respect to the price of pasta sauce is the percentage by which the demand for spaghetti changes in response to a 1 percent change in the price of pasta sauce, which in this case is calculated as −4/12 = -0.33.

If a store has a 10% off everything sale, then the store's total revenue will fall

-f the demand for the store's products is elastic with respect to price.

-no matter what because everything in the store is cheaper.

=if the demand for the store's products is inelastic with respect to price.

Changes in price and changes in total expenditure move in the same direction when the price elasticity of demand is

less than 1.

less than zero.

greater than 1.

If the cross-price elasticity of demand for motorcycles with respect to the price of cars is 0.05, then if the price of cars increases by 10 percent, the, the quantity of motorcycles demanded will

increase by 5 percent.

increase by 0.05 percent.

increase by 0.5 percent.

decrease by 5 percent.

0.5

2

-2

-0.5

0.5

Reason:

The cross-price elasticity of demand for Big Macs with respect to the price of Whoppers is the percentage by which the demand for Big Macs changes in response to a 1 percent change in the price of Whoppers, which in this case is calculated as −4/−8 = 0.5.

If the cross-price elasticity of demand for bike helmets with respect to the price of bikes is -0.25, then if the price of bikes increases by 10 percent, the quantity of bike helmets demanded will

decrease by 0.25 percent.

decrease by 2.5 percent.

decrease by 25 percent.

increase by 0.25 percent.

If the income elasticity of demand for pasta is -1.0, then a 10 percent decrease income will lead to a _____ in the quantity of pasta demanded.

1 percent decrease

1 percent increase

10 percent decrease

10 percent increase

10 percent increase

Reason:

A 10 percent increase since -1.0×-10=10.

If the price elasticity of demand is less than 1 and price decreases, then total expenditure will

increase.

decrease.

stay the same.

If the cross-price elasticity of demand for ice cream with respect to the price of apple pie is negative, then the two goods are

complements.

inferior goods.

substitutes.

normal goods.

complements.

-When the cross-price elasticity of demand for two goods is positive—as in the peanuts–cashews example—the two goods are substitutes. When it is negative, the two goods are complements.

If a 12 percent decrease income leads to a 3 percent decrease in the quantity of pedicures demanded, then the income elasticity of demand for pedicures is:

–0.25

4

–4

0.25

0.25

Reason:

The income elasticity of demand is 0.25 = 3/12.

If the income elasticity of demand for iPhones is 1.3, then a 10 percent decrease income will lead to a _____ in the quantity of iPhones demanded.

1.3 percent increase

13 percent decrease

13 percent increase

1.3 percent decrease

13 percent decrease

Reason:

A 13 percent decrease since 1.3×-10=-13.

If a 6 percent decrease income leads to a 9 percent increase in the quantity of lottery tickets demanded, then the income elasticity of demand for lottery tickets is:

0.33

1.5

–0.33

–1.5

–1.5

Reason:

The income elasticity of demand is –1.5 = 9/−6

3 percent decrease in the quantity of pineapples demanded

3 percent increase in the quantity of pineapples demanded.

0.75 percent decrease in the quantity of pineapples demanded.

0.75 percent increase in the quantity of pineapples demanded.

If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by

0.55 percent.

5.5 percent.

55 percent.

550 percent.

????? 5.5

not-0.55 percent.

-elastic

-inelastic

-unit elastic

-perfectly inelastic

??? unit elastic

not-inelastic

-elastic.

-inelastic.

-unit elastic.

-perfectly inelastic.

Which of the following is likely to have the highest price elasticity of demand?

-Shoes

-Running shoes

-Nike running shoes

-The price elasticity of demand will be the same for all of the answers listed.

All else equal, compared to small-budget items such as paper towels, the price elasticity of demand for big-ticket items such as refrigerators is

-higher.

-lower.

-very low.

-equal.

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is

0.3

0.533

1.6

1.875

0.3

how is (6/8)*(1/2.5)

(P/Q)*(1/slope)

-elastic; unit

-elastic; inelastic

-inelastic; elastic

-unit; inelastic

???? elastic; inelastic

not -inelastic; elastic

Suppose that, in an attempt to entice citizens to conserve energy, the government enacted regulations requiring that all air conditioners be more efficient in their use of electricity. After this regulation was implemented, government officials were then surprised to discover that people used even more electricity than before.

Using the concept of price elasticity, which of the following statements best explains how this increase might have occurred?

-The government ignored the possibility that the demand curve for electricity might be upward sloping.

-In practice, people often pay little attention to the relevant costs and benefits when deciding how much of a good, like electricity, to use.

-There is no way the observed change could have occurred if all consumers were fully informed, self-interested, and rational.

-Because the regulation effectively reduced the price of cool air, consumers with sufficiently elastic demand might have bought substantially more of it.

??

not The government ignored the possibility that the demand curve for electricity might be upward sloping.