question
If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could...
answer
Change price a little bit and observe what happens to total revenue
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If the cross-price of demand for goods X and Y is negative, this means the two good are...
answer
Complements
question
Which of the following could explain why the demand for table salt is inelastic?
answer
Households devote a very small portion of their income to salt purchases
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Cross-price elasticity of demand is calculated as the...
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Percentage change in quantity demanded of one good divided by percentage change in price of a different good
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If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is...
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One that sells a luxury good
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If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product this product is...
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An inferior good
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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...
answer
Elastic
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As price falls from PA to PB, the quantity demanded increases most along D1, therefore,...
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D1 is more elastic then D2 or D3
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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.
answer
2.69
question
Income elasticity measures...
answer
how a good's quantity demanded responds to change in buyer's incomes
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Which of the following statements about the price elasticity of demand is correct?
answer
Demand is more elastic in the long run than it is in the short run
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Suppose the value of the price elasticity of supply is 4. What does this mean?
answer
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent
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If demand is inelastic, the absolute value of the price elasticity of demand is...
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Less than one
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If a good has a negative income elasticity of demand, this indicates that the good is...
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Inferior
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The price elasticity of supply is equal to...
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The percentage change in quantity supplies divided by the percentage change in price
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The demand for all carbonated beverages is likely to be __________ the demand for Dr. Pepper.
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Less elastic than
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Price elasticity of supply is used to gauge...
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How responsive suppliers are to price changes
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If a 35 percent increase in the price of golf balls led to a 42 percent decrease in quantity demanded, then the demand for golf balls is...
answer
Relatively elastic
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Which of the following goods would have the most inelastic demand?
answer
Bread
question
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.
answer
1.62
question
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
answer
Demand is likely to be relatively inelastic
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When demand is price 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
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The price elasticity of an upward-sloping supply curve is always...
answer
Positive
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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 mid-point formula and this 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.
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Which of the following explains why a firm would be interested in knowing the price elasticity of demand for a good it sells?
answer
The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue
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The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?
answer
Farm revenues decrease
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Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve?
answer
It is elastic at high prices and inelastic at low prices
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The price elasticity of demand is equal to...
answer
The percentage change in quantity demanded divided by the percentage change in price
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Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."
answer
This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic.
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If the demand for a lifesaving drug were perfectly price inelastic and the price doubled, the quantity demanded would...
answer
Remain constant
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Which of the following statements is true about the price elasticity of demand?
answer
The elastic portion of a straight-line downward sloping demand curve corresponds to the segment above the midpoint
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A demand curve which is ___________ represents perfectly inelastic demand, and a demand curve which is ___________ represents inelastic demand.
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Vertical; downward sloping
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If the price elasticity of demand for canned soup is estimated at -1.62, then What happens to sales revenue if the price of canned soup rises?
answer
It falls
question
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
answer
0.5
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 my 3 percent
question
Price elasticity of demand measures...
answer
How responsive quantity demanded is to a change in price
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