CH 19 & 20 HW Flashcards
HW
At a price of $17.00 to play 18 holes on a golf course, 125 consumers pay to play a game of golf each day. Increasing the price to $21.50 causes the number of consumers to decline to 85.
What is the price elasticity of demand, expressed as a positive number? _____ (Round your answer to two decimal places.)
The demand is _____
-1.65
elastic
It is very difficult to find goods with perfectly elastic or perfectly inelastic demand. We can, however, find goods that lie near these extremes. Characterize the demand for the following goods as being near perfectly elastic or near perfectly inelastic.
a. Corn grown and harvested by a small farmer in Iowa
b. Heroin for a drug addict
c. Water for a desert hiker
d. One of several optional textbooks in a pass-fail course
near perfectly elastic demand
near perfectly inelastic demand
near perfectly inelastic demand
near perfectly elastic demand
In a local market, the monthly price of Internet access service decreases from $30 to $20, and the total quantity of monthly accounts across all Internet access providers increases from 90 comma 000 to 190 comma 000.
What is the value price elasticity of demand, expressed as a positive number? _____ (Round your answer to two decimal places.)
The demand is _____
1.79
elastic
What does the price elasticity of demand measure?
The responsiveness of quantity demanded to a change in the price of a good.
If a firm increases the price of their product in the elastic portion of the demand curve, total revenues will
decrease
Total revenues are maximized
at the point of unit-elasticity on the demand curve.
A DVD store lowered the price of its DVDs from $20 to $16. Correspondingly, sales increased from 1 comma 200 units to 2 comma 000 units per month.
Using total revenue calculations, we can say that, given this change in price, total revenue _____
In this case, demand is _____
increased
elastic
The absolute value of the short-run elasticity of demand for bread has been estimated to be 0.15. Its long-run elasticity of demand is
more than 0.15
The price elasticity of demand for a particular commodity depends upon all of the following except
availability of complementary goods.
For Kelly, there is no substitute for Diet Coke. It is the only thing she likes to drink.
Based only from this information, Kelly’s demand for Diet Coke would be expected to be _____
relatively inelastic
An 8 percent increase in the price of digital apps reduces the amount of tablet devices demanded by 7 percent.
The cross price elasticity of demand is _____ (Enter your response rounded to two decimal places and include a minus sign if necessary.)
The cross price elasticity of demand indicates that tablet devices and digital apps are _____
-0.87
compliments
Which of the following is true?
A. Income elasticity is positive for normal goods where the quantity demanded falls as income falls.
B. Income elasticity is negative for inferior goods where the quantity demanded falls as income rises.
C. Income elasticity is positive for normal goods where the quantity demanded rises as income rises.
D. Income elasticity is negative for inferior goods where the quantity demanded rises as income falls.
E. All of the above.
If the income elasticity of demand for hot dogs is negative 1.32, hot dogs are _____ good and if the income elasticity of demand for lobster is 1.25, lobster is _____ good.
All of the above
an inferior
a normal
Price elasticity of supply is calculated by dividing the percentage change in _____ by the percentage change in _____.
Usually, price elasticities of supply are _____ – higher prices yield _____ quantities supplied.
Long-run supply curves are _____ elastic than short-run supply curves because the _____ the time allowed, the more resources can flow into or out of an industry when price changes.
quantity supplied; price
positive, greater
more; longer
The campus pizzeria sells a large pizza for $14. When you buy a second large pizza, however, its price is only $10. How does this relate to marginal utility?
Since marginal utility falls as additional units of the good are consumed, consumers are only willing to purchase more as the price falls.
Consider the movements that take place from one point to the next (A to B to C and so on) along the total utility curve at right as the individual successively increases consumption by one more unit, and answer the questions that follow.
Which one-unit increase in consumption from one point to the next along the total utility curve generates the highest marginal utility?
Which one-unit increase in consumption from one point to the next along the total utility curve generates zero marginal utility?
Which one-unit increase in consumption from one point to the next along the total utility curve generates negative marginal utility?
A to B
E to F
F to G
Consider the figures to the right. Suppose that the individual currently consumes 4 digital apps. What happens to the person’s total utility if he were to increase his consumption to 5 units? Why does this fact imply that the marginal utility curve cuts through the horizontal axis of the lower figure between the fourth and fifth app consumed?
Increasing consumption to 5 apps from 4 apps leaves total utility _____ at _____ utils in the upper figure. Hence, the marginal utility between these two quantities of apps equals _____, which is the value of the _____
axis in the lower figure. Thus, the marginal utility curve crosses the _____ axis of the lower figure between units 4 and 5. (Enter your responses as whole numbers.)
unchanged
20
0
horizontal
horizontal
What is the difference between total utility and marginal utility?
Total utility is the total amount of satisfaction derived from consuming a certain amount of a good while marginal utility is the additional satisfaction gained from consuming an additional unit of the good.
Ryan is deciding between attending Western State University and Eastern State University. He cannot attend both universities simultaneously. Both are fine universities, but the reputation of Western is slightly higher, as is the tuition. Let MU Subscript Upper E and MU Subscript Upper W be Ryan’s marginal utilities from attending Eastern and Western State Universities respectively and Upper P Subscript Upper E and Upper P Subscript Upper W be the prices of attending Eastern and Western State Universities. Using the rule of consumer optimum, Ryan will decide to
attend Eastern State University, if MU Subscript Upper E Over Upper P Subscript Upper E exceeds MU Subscript Upper W Over Upper P Subscript Upper W
At a consumer optimum involving goods A and B, the marginal utility of good A is four times the marginal utility of good B.
The price of good B is $4.00. The price of good A is _____
$16.00
Suppose the price of apples falls relative to other similar goods, and as a result the quantity of apples demanded increases. This is caused by _____
substitution effect
When the price of gasoline increases, Jonathan buys less gasoline and less of all other goods.
This information describes _____
the real income effect of a price increase.
Tania spends her income on donuts and coffee. If Tania is at her consumer optimum and the price of donuts decreases, she will spend _____ on donuts, which will cause the marginal utility from consuming donuts to _____.
more; fall
To remain in consumer optimum, a price decrease requires _____in consumption. A price increase requires
_____in consumption.
Each change in price has a substitution effect. When the price of a good _____, the consumer _____in favor of that relatively cheaper good.
Each change in price also has a real-income effect. When price _____, the consumer’s real purchasing power increases, causing the consumer to purchase _____of most goods. Assuming that the principle of diminishing marginal utility holds, the demand curve must slope downward.
The price of water is lower than the price of diamonds because people consume _____ water than diamonds, which results in a _____ marginal utility of water compared with the marginal utility of diamonds.
an increase; a decrease
falls; substitute
falls; more
more; lower
Most economists
apply the assumption that people behave as if they act rationally with an aim to maximize utility.
Advocates of applying behavioral economics to consumer choice theory argue that _____ prevents people from accounting for every feasible choice, which _____ their ability to pursue their long-term interests effectively.
The _____ economics approach to consumer behavior offers a wider range of possible predictions of a consumer’s choices than the _____ -maximization theory of a consumer optimum, which makes clear-cut predictions about consumers’ choices.
bounded rationality; limits
behavioral; utility
