question
The basic formula for price elasticity is
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The percentage change in quantity demanded divided by the percentage change in price.
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If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be
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0.5
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Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will
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Decrease by 14.3 percent.
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If the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the absolute value of the price elasticity of demand is
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0.4
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Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will
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Increase by 95 percent.
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If demand is price-elastic, then
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The elasticity number E is greater than 1.
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A demand curve that is perfectly inelastic is
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vertical
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When demand is inelastic
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The percentage change in price is greater than the percentage change in quantity demanded.
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Which of the following products will have more inelastic demand? New cars, Fresh flowers, Fast food, Medicines.
answer
medicines
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Which of the following is not a determinant of the price elasticity of demand? The number of substitute goods available, incorrect The share of a consumer's budget, The amount of income the consumer has, The time frame—whether it is in the short run or long run
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The amount of income the consumer has.
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what are the 4 determinants of price elasticity of demand?
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the number of substitutes, whether the product is a necessity or luxury, the time frame, and the weight of the product in terms of the consumer's budget
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Total revenue is equal to
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The income from sales.
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Higher prices will increase total revenue if
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Demand is inelastic.
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Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to
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Lower his price to increase revenue.
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Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to
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6.3
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Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will become
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Less positive (move closer to zero).
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Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year. The value of the cross-price elasticity of demand is
answer
1.80
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If two goods are complementary goods, then
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The cross-price elasticity sign will be negative.
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Suppose the income elasticity of demand for used jet skis is 3.5. If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus,
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fall by 3.5 percent
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If income rises by 10 percent and the quantity sold of a particular vehicle falls by 7 percent, then this particular type of vehicle is
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an inferior good
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A production function shows the
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Maximum output that can be produced with varying combinations of factor inputs.
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Ceteris paribus, the law of diminishing returns states that beyond some point, the
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Marginal physical product of a factor of production diminishes as more of that factor is used.
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Marginal cost
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Is the change in total cost from producing one additional unit of output.
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The sum of fixed cost and variable cost at any rate of output is
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Total cost.
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Which of the following is most likely a fixed cost? Raw materials cost, Labor cost, Energy cost, Property taxes.
answer
property taxes
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In the short run, when a firm produces zero output, variable cost equals
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zero
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Sam's surf shop has total costs of $2,000 when it is not producing any surfboards. This means that
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Fixed costs are $2,000.
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The average fixed cost (AFC) curve
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Declines as long as output increases.
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A U-shaped average total cost curve implies
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First marginal cost below average total cost, and then marginal cost above average total cost.
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The marginal cost curve intersects the minimum of the curve representing
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ATC
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Accounting costs and economic costs differ because
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Economic costs include implicit costs and accounting costs do not.
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Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.
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Dad says her cost is $31,000 and Mom says her cost is $47,600.
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The period in which there are no fixed costs is the
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long run
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Economies of scale are reductions in average
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Total cost that result from using operations of larger size.
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how do you find AVC?
answer
VC/quantity
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