question
Suppose the value of the price elasticity of demand is -3. What does this mean?
answer
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
question
The price elasticity of demand for Stork ice cream is -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?
answer
2.5 percent
question
Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?
answer
It is elastic at the highest prices and inelastic at the lowest prices.
question
If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is
answer
elastic.
question
If the demand for iPods is price elastic, then
answer
the percentage change in quantity demanded is greater than the percentage change in price (in absolute value).
question
Assume that when the price of cantaloupes is $2.50 the demand for cantaloupes is unit-elastic, and that the demand curve for cantaloupes is linear and downward sloping. If firms lower the price of cantaloupes to $2.00 which of the following statements can be made regarding the price elasticity of demand for cantaloupes?
answer
The demand for cantaloupes at $2.00 must be inelastic.
question
Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Select the correct implication from your work.
answer
The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.
question
When there few close substitutes available for a good, demand tends to be
answer
relatively inelastic
question
The demand for gasoline in the short run is
answer
inelastic because there are very few good substitutes for gasoline.
question
Which of the following would result in a higher absolute value of the price elasticity of demand for a product?
answer
A wide variety of substitutes are available for the good.
question
Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore
answer
the demand for salt is relatively inelastic.
question
When demand is elastic, a fall in price causes total revenue to rise because
answer
the increase in quantity sold is large enough to offset the lower price.
question
Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded
and total revenue when price increases?
and total revenue when price increases?
answer
The quantity demanded does not change but total revenue increases.
question
If the demand for a product is perfectly inelastic, a decrease in the price of the product
answer
will decrease total revenue.
question
When Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?
answer
Sales revenue decreased.
question
Income elasticity measures how a good's quantity demanded responds to
answer
change in buyers' incomes.
question
Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that
answer
an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.
question
If the cross-price elasticity of demand for computers and software is negative, this means the two goods are
answer
complements.
question
Consider the following pairs of items:
a.shampoo and conditioner
b.iPhones and earbudsc.a
laptop computer and a
desktop computerd.
beef and porke.
air travel and weed killer
Which of the pairs listed will have a negative cross-price elasticity?
a.shampoo and conditioner
b.iPhones and earbudsc.a
laptop computer and a
desktop computerd.
beef and porke.
air travel and weed killer
Which of the pairs listed will have a negative cross-price elasticity?
answer
a and b only
question
If the cross-price elasticity of demand between Breeze Detergent and Gain Detergent is a relatively large positive number, then it indicates that
answer
the two brands of detergent are close substitutes.
question
If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is
answer
a luxury.
question
Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.
answer
0.5; The product is inelastic.
question
If firms do not increase their quantity supplied when price changes, then supply is
answer
perfectly inelastic.
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