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Micro Economics > Chapter 19 > Flashcards

Chapter 19 Flashcards

Beast it on chapter 19!!!

1
Q

Price elasticity of demand is defined as?

A

the percentage change in quantity divided by the percentage change in price.

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2
Q

What does the price elasticity of demand measure?

A

The responsiveness of quantity demanded to a change in the price of a good.

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3
Q

Suppose that when the price of a soft drink rises 10%, the quantity demanded of the soft drink falls 5%. Based on this information, what is the approximate absolute price elasticity of demand for soft drink?

A

0.5

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4
Q

The price elasticity of demand measures

A

the consumers’ sensitivity to a price change.

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5
Q

Which of the following statements about demand and price elasticity of demand is TRUE?

As the demand curve has a negative slope, the price elasticity of demand is positive.

As the demand curve has a positive slope, the price elasticity of demand is positive.

As the demand curve has a positive slope, the price elasticity of demand is negative.

As the demand curve has a negative slope, the price elasticity of demand is negative.

A

As the demand curve has a negative slope, the price elasticity of demand is negative.

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6
Q

The price elasticity of demand is

always positive, so there is no reason to consider the absolute value of the price elasticity of demand.

always equal to zero, so there is no reason to consider the absolute value of the price elasticity of demand.

always negative, but by convention, economists typically express the price elasticity of demand as an absolute value.

always equal to -1, which by convention economists typically express as an absolute value, or 1.

A

always negative, but by convention, economists typically express the price elasticity of demand as an absolute value.

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7
Q

If the price elasticity of demand for good A is -1, then a 1% increase in

consumer income will result in a 1% increase in the demand for good A.

the market price of good A will result in a 1% decrease in the quantity demanded of good A.

the market price of good A will result in a 1% increase in the quantity demanded of good A.

consumer income will result in a 1% decrease in the demand for good A.

A

the market price of good A will result in a 1% decrease in the quantity demanded of good A.

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8
Q

it is very difficult to find good 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.

Corn grown and harvested by a small farmer in Iowa?

Heroin fro a drug addict?

Water for a desert hiker?

One of several optional textbooks in a pass-fail course?

A

near perfectly elastic demand

near perfectly inelastic demand

near perfectly inelastic demand

near perfectly elastic demand

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9
Q

A craftsman who makes guitars by hand finds that when he prices his guitars at $900, his annual revenue is $6,300. When he prices his guitars at $800, his annual revenue is $6,400.

Over this range of guitar prices, does the craftsman face elastic, unit-elastic, or inelastic demand?

A

elastic

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10
Q

If a firm increases the price of their product in the elastic portion of the demand curve, total revenues will

A

decrease

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11
Q

Total revenues are maximized

on the downward-sloping portion of the demand curve.

at the point of unit-elasticity on the demand curve.

in the inelastic range of the demand curve.

in the elastic range of the demand curve.

A

at the point of unit-elasticity on the demand curve.

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12
Q

A firm could lower prices and still increase revenue if

elasticity of demand is equal to zero.

demand is inelastic.

elasticity of demand is equal to unity.

demand is elastic.

A

demand is elastic.

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13
Q

All of the following determine the price elasticity of demand EXCEPT

a change in the price of resources used to produce the good

the existence of close substitutes.

the length of the time period.

the proportion of a person’s budget spent on the good.

A

a change in the price of resources used to produce the good.

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14
Q

For Kelly, there is no substitute for Diet Coke. It is the only thing that she likes to drink.

Based only on this information, Kelly’s demand for Diet Coke would be expected to be

relatively inelastic

unitary.

relatively elastic.

There is not enough information to determine anything about elasticity.

A

relatively inelastic.

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15
Q

The value of cross price elasticity of demand between goods X and Y is 0.75, while the cross price elasticity of demand between goods X and Z is -0.75.

Which of the following are true?

X and Y are substitutes and X and Z are complements.

X and Y and X and Z are substitutes.

X and Y are complements and X and Z are substitutes.

X and Y and X and Z are complements

Non of the above.

A

X and Y are substitutes and X and Z are complements.

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16
Q

Suppose that the cross price elasticity of demand between goods A and B equals 0.5. Which of the following is TRUE?

A and B are complements because the cross price elasticity is positive.

A and B are substitutes because the cross price elasticity is positive.

A and B are complements because the cross price elasticity is less than one.

A and B are substitutes because the cross price elasticity is less than one.

A

A and B are substitutes because the cross price elasticity is positive.

17
Q

Suppose that the cross price elasticity of demand between bagels and cream cheese is -1.45. This indicates that the two goods are

both inferior.

complements.

completely unrelated in the minds of consumers.

substitutes.

A

complements.

18
Q

Which of the following is true?

income elasticity is positive for normal goods where the quantity demanded falls as income falls.

income elasticity is negative for inferior good where the quantity demanded rises as income falls.

income elasticity is positive for normal goods where the quantity demanded rises as income rises

income elasticity is negative for inferior good where the quantity demanded falls income rises

All of the above

A

All of the above

19
Q

Income elasticity of demand

measures the responsiveness of quantity demanded to a change in income and refers to the horizontal shift of the demand curve.

measures the responsiveness of quantity demanded to a change in income and refers to the vertical shift of the demand curve.

measure the responsiveness of price to change in income

measures the responsiveness of quantity demanded to a change in income and refers to the movement along the demand curve.

A

measures the responsiveness of quantity demanded to a change in income and refers to the horizontal shift of the demand curve.

20
Q

The income elasticity of a normal good is

negative

greater than one

positive

equal to 0

A

positive

21
Q

when personal income in the country rises, so do alcohol consumption and traffic fatalities. It can be said that

alcohol is a normal good and has a positive income elasticity of demand

alcohol is a normal good and has a unit price elasticity of demand

alcohol is an inferior good and has a positive income elasticity of demand

none of the above.

A

alcohol is a normal good and has a positive income elasticity of demand

22
Q

The long-run elasticity of supply in most industries is _________ than the short-run elasticity because in the long run, _________.

less elastic; consumer demand will increase, increasing industry profits

less elastic; resources and firms can enter the industry

more elastic; resource and firms can enter the industry

more elastic; consumer demand will increase, increasing industry profits

A

more elastic; resources and firms can enter the industry.

23
Q

If the supply of a good is perfectly inelastic, the price elasticity of supply will equal

positive infinity.

zero

one

none of the above

A

zero.

24
Q

If the quantity supplied stay the same no matter what the price is, then supply is

perfectly elastic.

unit-elastic.

perfectly inelastic.

undefined.

A

perfectly inelastic

25
Q

A vertical supply curve may be described as being relatively inelastic

perfectly inelastic

perfectly elastic

relatively elastic

A

perfectly inelastic.

26
Q

If the income elasticity of demand for hot dogs is -1.25, hot dogs are _________ good and if the income elasticity of demand for lobster is 2.00, lobster is ______ good

A

an inferior; a normal

27
Q

Based on only the information provided, characterize the demand for the following goods as being more elastic or more inelastic.

A. A 45-cent box of salt that you buy once a year?

B. A type of high powered ski boat that you can rent from any one of a number of rental agencies?

C. Aspecific brand of bottled water?

D. Automobile insurance in a state that requires autos to be insured but has a few insurance companies?

E. A 75 cent guitar pick for the lead guitarist of a major rock band?

A

more inelastic

more elastic

more elastic

more inelastic

more inelastic

28
Q

Which of the following would have the most elastic demand?

A. Cigarettes

B. Electricity

C. Coke

D. Salt

A

C. Coke

29
Q

The price elasticity of demand for a particular commodity depends upon all of the following except

A. the percentage of a consumer’s total budget devoted to purchasing that commodity.

B. the number of close substitutes for that commodity.

C. availability of complementary goods.

D. the length of time allowed for price changes of that commodity.

A

C. availability of complementary goods

30
Q

Suppose that the cross price elasticity of demand between eggs and bacon is -0.10. What would you expect to happen to the sales of bacon if the price of eggs rises by 10 percent?

The demand would _____?

by_____ percent

A

fall

1

31
Q

one would expect that the cross price elasticity of ski poles and skis would be

A. negative since they are complements.

B. positive since they are complements.

C. negative since they are substitutes.

D. positive since they are substitutes.

A

A. negative since they are complements.

32
Q

We should expect the cross price elasticity of butter and margarine to be

A. negative since they are complements.

B. positive since they are complements.

C. negative since they are substitutes.

D. positive since they are substitutes.

A

D. positive since they are substitutes.

Micro Economics (3 decks)

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