# Chapter 5 Econ

Total word count: 591
Pages: 2

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 A life-saving medicine without any close substitutes will tend to have a small elasticity of demand The price of a good rises from \$8 to \$12, and the quantity demanded falls from 110 to 90 units. Calculated with the midpoint method, the elasticity is 1/2 A linear, downward-sloping demand curve is inelastic at some points, and elastic at others. The ability of firms to enter and exit a market over time means that, in the long run, the supply curve is more elastic. An increase in the supply of a good will decrease the total revenue producers receive if the demand curve is inelastic. Tom: Demand increased, but supply was perfectly inelastic. Dick: Demand increased, but it was perfectly inelastic. Harry: Demand increased, but supply decreased at the same time. Larry: Supply decreased, but demand was unit elastic. Mary: Supply decreased, but demand was perfectly inelastic. Who could possibly be right? Tom, Harry, and Mary A decrease in supply will cause the smallest increase in price when both supply and demand are elastic. If price increases from \$10 to \$20, total revenue will increase by \$120, so demand must be inelastic in this price range Using the midpoint method, the price elasticity of demand between point X and point Y is 2.5 A key determinant of the price elasticity of supply is the time horizon. Income elasticity of demand measures how the quantity demanded changes as consumer income changes. Total revenue when the price is P1 is represented by the area(s) B + D. For prices above \$5, demand is price elastic, and lowering price will increase total revenue. At a price of \$10 per unit, sellers’ total revenue equals \$450. Using the midpoint method, demand is unit elastic when quantity demanded changes from 400 to 300. If the price elasticity of demand for apples is 0.8, then a 2.4% increase in the price of apples will decrease the quantity demanded of apples by 1.92%, and apples sellers’ total revenue will increase as a result. Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue? 0.8 Moving downward and to the right along a linear demand curve, we know that total revenue first increases, then decreases As we move downward and to the right along a linear, downward-sloping demand curve, slope remains constant but elasticity changes. Using the midpoint method, what is the price elasticity of supply between points A and B? 2.33 Along which of these segments of the supply curve is supply most elastic? AB A linear, upward-sloping supply curve has A constant slope and a changing price elasticity of supply. A key determinant of the price elasticity of supply is the ability of sellers to change the amount of the good they produce. If the price elasticity of supply for wheat is less than 1, then the supply of wheat is inelastic As price falls from Pa to Pb, which demand curve represents the most elastic demand? D1 The demand curve representing the demand for a luxury good with several close substitutes is C If demand is price inelastic, then when price rises, total revenue will rise Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue? 0.3 If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by 3.48%, and aluminum foil sellers’ total revenue will increase as a result. As price rises from \$5 to \$6, the price elasticity of demand using the midpoint method is approximately 0.41.

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