ECON 201 Part 3 Price Elasticity Flashcards

Questions and Answers

Holding all other forces constant, if increasing the price of a good leads to an increase in total revenue, then the demand for the good must be?

Elastic

Unit elastic

Inelastic (correct)

None of the above is correct because a price increase always leads to an increase in total revenue

Demand is said to be inelastic if?

The price of the good responds only slightly to changes in demand

Demand shifts only slightly when the price of the good changes

The quantity demanded changes only slightly when the price of the good changes (correct)

Buyers respond substantially to changes in the price of the good

Suppose you are in charge of setting prices at a local sandwich shop. If the demand for sandwiches is elastic, you?

Could not determine what to do with price until you determine whether supply is elastic or inelastic

Should decrease the price of sandwiches (correct)

Should increase the price of sandwiches

Should not change the price of sandwiches

Using the midpoint method, the price elasticity of demand between point B and point C is?

0.75 Signup and view all the answers

According to the midpoint method, a government policy that changed the price of a pack of cigarettes from $2 to $6 should have reduced smoking by what percentage?

40% Signup and view all the answers

Demand is said to be price elastic if?

Buyers respond substantially to changes in the price of the good Signup and view all the answers

When demand is elastic, a decrease in price will cause?

An increase in total revenue Signup and view all the answers

In the case of perfectly inelastic demand?

Quantity demanded stays the same whenever price changes Signup and view all the answers

If the cross-price elasticity of demand for two goods is 1.25, then?

The two goods are substitutes Signup and view all the answers

For which of the following goods is the income elasticity of demand likely highest?

Diamonds Signup and view all the answers

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be?

Positive Signup and view all the answers

Last month, sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units. We can conclude that goods X and Y are?

Substitutes, and have a cross-price elasticity of 1.67 Signup and view all the answers

For which of the following goods is the income elasticity of demand likely lowest?

Housing Signup and view all the answers

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils Signup and view all the answers

You and your college roommate eat three packages of Ramen noodles weekly. After graduation, your income increased, but your roommate plans to buy fewer Ramen noodles. When looking at income elasticity, yours would?

Be positive, and your roommate's would be negative Signup and view all the answers

For which of the following goods is the income elasticity of demand likely highest?

Boats Signup and view all the answers

If the cross-price elasticity of two goods is negative, then the two goods are?

Complements Signup and view all the answers

Sandra purchases 5 pounds of coffee and 10 gallons of milk per month. Her cross-price elasticity of demand for coffee and milk is?

-0.82, and they are complements Signup and view all the answers

If the quantity supplied responds only slightly to changes in price, then?

Supply is said to be inelastic Signup and view all the answers

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about?

1.33, and supply is elastic Signup and view all the answers

A key determinant of the price elasticity of supply is the?

Time horizon Signup and view all the answers

On a certain supply curve, one point is (quantity supplied = 200, price = $4.00) and another point is (quantity supplied = 250, price = $4.50). Using the midpoint method, the price elasticity of supply is about?

1.89 Signup and view all the answers

As the price elasticity of supply increases, the supply curve?

Becomes flatter Signup and view all the answers

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about?

1.5% in the short run and 6% in the long run Signup and view all the answers

A key determinant of the price elasticity of supply is?

The ability of sellers to change the amount of the good they produce Signup and view all the answers

Which of the following statements is not valid when the market supply curve is vertical?

An increase in market demand will increase the equilibrium quantity Signup and view all the answers

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is?

Zero Signup and view all the answers

A key determinant of the price elasticity of supply is?

The ability of sellers to change the amount of the good they produce Signup and view all the answers

When a supply curve is relatively flat, the?

Supply is relatively elastic Signup and view all the answers

Which of the following statements is not valid when the market supply curve is vertical?

An increase in market demand will increase the equilibrium quantity Signup and view all the answers

A linear, upward-sloping supply curve has?

A constant slope and a changing price elasticity of supply Signup and view all the answers

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms?

Supply is more elastic at low levels of output and less elastic at high levels of output Signup and view all the answers

Refer to Figure 6-4. Which of the following statements is not correct?

When the price is $6, there is a surplus of 8 units Signup and view all the answers

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?

A smaller quantity of the good is bought and sold Signup and view all the answers

Opponents of the minimum wage point out that the minimum wage?

All of the above are correct Signup and view all the answers

A binding minimum wage?

Alters both the quantity demanded and quantity supplied of labor Signup and view all the answers

The proportion of minimum-wage earners who are in families with incomes below the poverty line is?

Less than one-third Signup and view all the answers

Refer to Figure 6-11. If the government imposes a price floor at $9, it would be?

Binding if market demand is Demand A and non-binding if market demand is Demand B Signup and view all the answers

If the government removes a binding price ceiling from a market, then the price paid by buyers will?

Increase, and the quantity sold in the market will increase Signup and view all the answers

Study Notes

Price Elasticity of Demand

Demand is inelastic when quantity demanded changes only slightly with price changes.
Demand is elastic when quantity demanded responds greatly to price changes.
For inelastic goods, raising the price can increase total revenue.
If demand for sandwiches is elastic, prices should be decreased to boost revenue.

Measurable Elasticity

The midpoint method calculates the price elasticity of demand; example shows elasticity of 0.75 between two points.
Cigarette price increase from $2 to $6 correlates with a 40% reduction in consumption, derived from its low price elasticity of 0.04.

Relationships Between Goods

A cross-price elasticity of 1.25 indicates goods are substitutes; higher values suggest stronger substitute relationships.
Negative cross-price elasticity indicates complement goods; for example, coffee and milk have a cross-price elasticity of -0.82.

Income Elasticity of Demand

Diamonds likely have the highest income elasticity; goods like housing and water have lower income elasticity.
Ramen noodles provide insights; one consumer increases demand while another decreases it as income rises, illustrating varying elasticities.

Price Effects on Supply

A supply is inelastic when quantity supplied changes slightly with price variations; exemplified by the elasticity of 0.3 for minivans in the short run yet rising to 1.2 in the long run.
If prices rise, the supply curve becomes flatter, showing increased responsiveness.

Market Dynamics with Price Controls

A binding price ceiling leads to decreased quantities sold and potential shortages.
Minimum wage policies potentially prevent workers from gaining on-the-job training and contribute to unemployment.

Economic Behavior and Shifts

Vertical supply curves do not change quantity supplied with price changes; increases in demand only raise prices without increasing quantity.
Removing a binding price ceiling results in increased prices and quantities sold.

Other Aspects of Elasticity

The ability to change supply is crucial for understanding elasticity.
A linear supply curve’s slope remains constant, while elasticity changes at various points.
Observations related to minimum wage and its impacts reflect broader economic theories on labor markets and income distributions.

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Test your knowledge on price elasticity of demand with these flashcards from ECON 201 Part 3. Each card offers insightful definitions and concepts related to elasticity, helping you grasp key economic principles. Perfect for review and study.

ECON 201 Part 3 Price Elasticity Flashcards

Questions and Answers

Holding all other forces constant, if increasing the price of a good leads to an increase in total revenue, then the demand for the good must be?

Demand is said to be inelastic if?

Suppose you are in charge of setting prices at a local sandwich shop. If the demand for sandwiches is elastic, you?

Using the midpoint method, the price elasticity of demand between point B and point C is?

According to the midpoint method, a government policy that changed the price of a pack of cigarettes from $2 to $6 should have reduced smoking by what percentage?

Demand is said to be price elastic if?

When demand is elastic, a decrease in price will cause?

In the case of perfectly inelastic demand?

If the cross-price elasticity of demand for two goods is 1.25, then?

For which of the following goods is the income elasticity of demand likely highest?

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be?

Last month, sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units. We can conclude that goods X and Y are?

For which of the following goods is the income elasticity of demand likely lowest?

For which pairs of goods is the cross-price elasticity most likely to be positive?

You and your college roommate eat three packages of Ramen noodles weekly. After graduation, your income increased, but your roommate plans to buy fewer Ramen noodles. When looking at income elasticity, yours would?

For which of the following goods is the income elasticity of demand likely highest?

If the cross-price elasticity of two goods is negative, then the two goods are?

Sandra purchases 5 pounds of coffee and 10 gallons of milk per month. Her cross-price elasticity of demand for coffee and milk is?

If the quantity supplied responds only slightly to changes in price, then?

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about?

A key determinant of the price elasticity of supply is the?

On a certain supply curve, one point is (quantity supplied = 200, price = $4.00) and another point is (quantity supplied = 250, price = $4.50). Using the midpoint method, the price elasticity of supply is about?

As the price elasticity of supply increases, the supply curve?

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about?

A key determinant of the price elasticity of supply is?

Which of the following statements is not valid when the market supply curve is vertical?

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is?

A key determinant of the price elasticity of supply is?

When a supply curve is relatively flat, the?

Which of the following statements is not valid when the market supply curve is vertical?

A linear, upward-sloping supply curve has?

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms?

Refer to Figure 6-4. Which of the following statements is not correct?

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?

Opponents of the minimum wage point out that the minimum wage?

A binding minimum wage?

The proportion of minimum-wage earners who are in families with incomes below the poverty line is?

Refer to Figure 6-11. If the government imposes a price floor at $9, it would be?

If the government removes a binding price ceiling from a market, then the price paid by buyers will?

Study Notes

Price Elasticity of Demand

Measurable Elasticity

Relationships Between Goods

Income Elasticity of Demand

Price Effects on Supply

Market Dynamics with Price Controls

Economic Behavior and Shifts

Other Aspects of Elasticity

Studying That Suits You

Description

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