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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?
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?
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?
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?
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?
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?
Demand is said to be price elastic if?
When demand is elastic, a decrease in price will cause?
When demand is elastic, a decrease in price will cause?
In the case of perfectly inelastic demand?
In the case of perfectly inelastic demand?
If the cross-price elasticity of demand for two goods is 1.25, then?
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?
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?
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?
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 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?
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?
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?
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?
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?
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 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?
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?
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?
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?
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?
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?
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?
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 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?
A key determinant of the price elasticity of supply is?
When a supply curve is relatively flat, the?
When a supply curve is relatively flat, the?
Which of the following statements is not valid when the market supply curve is vertical?
Which of the following statements is not valid when the market supply curve is vertical?
A linear, upward-sloping supply curve has?
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?
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?
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?
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?
Opponents of the minimum wage point out that the minimum wage?
A binding minimum wage?
A binding minimum wage?
The proportion of minimum-wage earners who are in families with incomes below the poverty line is?
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?
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?
If the government removes a binding price ceiling from a market, then the price paid by buyers will?
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.
