Chapter 5 (most questions of exam 1) Flashcards
Price elasticity of demand refers to the
percentage change in the quantity demanded in response to a percentage change in the price of a good
Demand price elasticity (the price elasticity of demand for good X) measures
how consumers change their purchases (in percentage terms) in response to a change in price brought about by a change in supply of a commodity
If demand price elasticity measures 2, this implies that consumers would
buy 2% more of the product in response to a 1 % drop in price
If the price elasticity of demand for a product measures .45,
this good is demand price elastic
If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is
inelastic
If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is
elastic
If the percentage change in the quantity demanded of a good equals the percentage change in price, price elasticity is
unitary elastic
When demand is price inelastic
price and total revenue move in the same direction
If demand is inelastic, an increase in the price of a good will cause total revenue to
rise
If demand is price elastic, a decrease in price causes
an increase in total revenue
Suppose the president of a college argues that a 50% tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attain this college is
inelastic, but not perfectly elastic
If a demand curve for a good was completely vertical, it would be considered
perfectly inelastic
An economist estimates that .67 is the price elasticity of demand for disposable diapers. This suggests that disposable diaper producers could
raise the price of disposable diapers to raise more revenue
The short-run price elasticity of demand for airline travel is .15, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to
collect less revenue form travelers who book well in advance
Firms would like to know the price of elasticity of demand for their products because it helps determine the effect of price changes on the firms’
revenues
If New York City expects that an increase in bus fares will raise mass transit revenues, it must think that the demand for bus travel is
inelastic
Which of the following describes a situation in which demand must be elastic?
Total revenue decreases by more than $15 when the price of corn dogs rises by 15%
Consider the market for bicycles. If a dealer cuts prices by 10% and sells 20% more bikes, then demand for bicycles is
elastic, and total revenue will increase
Governments can use price elasticity of demand to estimate how changes in excise tax rates will affect
tax revenues
If the price elasticity of demand coefficient equals 2 then
a price decrease will increase total revenue
The demand for a product is likely to be more elastic when
more substitutes for the product are available
Other things constant, the price elasticity of demand for a product will be smaller (more inelastic) if
people spend an insignificant share of their income on the product
A product would be more demand price elastic
the less the essential nature of the good
A product would be more demand price inelastic
the shorter the time the consumer has to adjust to price changes
The longer the time period under study,
the more elastic is the price elasticity of demand
The long-run price elasticity of demand is usually larger than the short-run price elasticity of demand because
people have more time to find substitute goods
The price elasticity of demand coefficient for a good will be inelastic
if there are few substitutes and if expenditure on it is small part of one’s budgets
As the period for firms to expand output is lengthened, the elasticity of the market supply curve will
increase (more elastic)
All things equal, the price elasticity of supply
will be greater in the long run than in the short run
If the price elasticity of supply coefficient is greater than one, then supply is
elastic
A perfectly elastic supply curve is expressed graphically as a
horizontal line
In the very short-run period
the price elasticity of supply is very inelastic
