Chapter 6 Flashcards
Price elasticity looks at
how much the quantity demanded or quantity supplied changes after as a result of a change in price.
The basic formula for price elasticity of demand is
the percentage change in quantity demanded divided by the percentage change in price.
Technically the elasticity number is negative because
when price falls, quantity demanded will rise, but for simplicity, economists take the absolute value of the elasticity number.
f the price increases by 10 percent and the quantity demanded falls by 5 percent, the absolute value of the price elasticity of demand will be
0.5
Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will
decrease by 14.3 percent.
If the elasticity of demand is 3, and the price rises by 15 percent, then
the quantity demanded will fall by 45 percent.
Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will
increase by 95 percent.
If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded.
6 percent decrease
When demand is elastic, the absolute number for price elasticity will be
greater than 1.
If the demand for a product is elastic, then
the percentage change in quantity demanded is greater than the percentage in price.
When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus,
demand is inelastic.
Which of the following products will have a more inelastic demand?
medicines
Which of the following products will have an elastic demand?
Travel souvenirs
Which of the following does not influence the price elasticity of demand?
cost of production
Ceteris paribus, as the number of substitutes for a good increases, the
price elasticity of demand should become larger.
Ceteris paribus, the longer the time period, the
more elastic the demand for the good.
Total revenue is
quantity sold times price.
If demand is elastic, then
an increase in price will reduce total revenue.
A price change will have no effect on total revenue if the demand is
unitary elastic
Higher prices will increase total revenue if the
demand is inelastic.
Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to
lower his price to increase revenue.
The formula for cross-price elasticity is
the percentage change in the quantity demanded for one good divided by the percentage change in the price of another good.
Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to
6.3
When the price of taking a ride in Uber increases, the demand for Lyft rides increases, ceteris paribus. Uber and Lyft are therefore
substitutes
