Micro Chapter 6

The price elasticity of demand coefficient measures

Buyers responsiveness to price changes

The basic formula for the price elasticity of demand coefficient is

Percent change in quantity demanded/percentage change in price

The demand for a product is inelastic with respect to price if

consumers are largely unresponsive to a per unit price change

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will

Increase the quantity demanded by about 25 percent

Suppose that as the price of Y falls from $2 to $1.90 the quantity of Y demanded increases from from 110 to 118. Then the price elasticity of demand is

$1.37

Which of the following is not characteristic of the demand for a commodity that is elastic?

The elasticity coefficient is less than one

If the demand for product X is inelastic, a 4 percent increase in the price of X will

Decrease the quantity of X demanded by less than 4%

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then

The price elasticity of demand is 2.25

A perfectly inelastic demand schedule

Can be represented by a line parallel to the vertical axis

The larger the coefficient of price elasticity of demand for a product, the

smaller the resulting price change for an increase in supply

Most demand curves are relatively elastic in the upper-left portion because the original price

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16% increase in sales implies a

20% reduction in price

Suppose Aiyanna’s Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5% per week for an indefinite period of time. We can expect that each successive week

Demand will become less price elastic

The price elasticity of demand of a straight-line demand curve is

Elastic in high-price ranges and inelastic in low-price ranges

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the

More inelastic the demand for the product

If the demand for bacon is relatively elastic, a 10% delcine in price of bacon will

Increase the amount demanded by more than 10%

The price elasticity of demand is generally

Negative, but the minus sign is ignored

For a linear demand curve

Demand is elastic at high prices

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range

Is elastic

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2%. We can conclude that the quantity demanded

decreased by 7%

The price elasticity of demand for beef is about .60. Other things equal, this means that a 20% increase in the price of beef will cause the quantity of beef demanded to

Decrease by approximately 12%

If a demand for a product is elastic, the value of the price elasticity coefficient is

Greater than one

The concept of price elasticity of demand measures

The sensitivity of consumer purchases to price changes

Suppose the price of local cable TV services increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is

1.2

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then

Demand is elastic

A perfectly inelastic demand curve

Graphs as a line parallel to the vertical axis

If quantity demanded is completely unresponsive to price changes, demand is

Perfectly inelastic

A firm can sell as much as it wants at a constant price. Demand is thus

Perfectly elastic

A demand curve which is parallel to the horizontal axis is

perfectly elastic

When the percentage change in price is greater than the resulting percentage change in quantity demanded

an increase in price will increase total revenue

Suppose the price elasticity coefficients of demand are 1.43,.67,1.11, and .29 for products W,X,Y, and Z respectively. A 1% decrease in price will increase total revenure in the case(s) of

W and Y

Which of the following statements is no correct

In the range of prices in which demand is elastic, total revenue will diminish as price decreases

In which of the following instances will total revenue decline

Price rises and demand is elastic

If a firm’s demand for labor is elastic, a union-negotiated wage increase will

Cause the firm’s total payroll to decline

The Illonois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20%. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad’s revenues would fall because of the rate hike. It can be concluded that

The railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic

If a firm finds that it can sell $13,000 worth of product when its price is $5 per unit and $11,000 worth of it when its price is $6, then

The demand for the product is elastic in the $6-$5 price range

Suppose the price elasticity of demand for bread is .20. If the price of break falls by 10%, the quantity demanded will increase by

2% and total expenditures on bread will fall

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is

Relatively inelastic

If the demand for farm products is price inelastic, a good harvest will cause farm revenues to

Decrease

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is

Relatively elastic

If the price elasticity of demand for a product is unity, a decrease in price will

Increase the quantity demanded, but total revenue will be unchanged

In which of the following cases will total revenue increase

Price rises and demand is inelastic

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus

The demand for pizza is elastic above $5 and inelastic below $5

The total-revenue test for elasticity

Does not apply to supply because price and quantity are directly related

If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is

Inelastic

The state legislature has cut Gigantic State University’s appropriations. GSU’s Board of Regents decides to increase tuition fees to compensate for the loss of revenue. The board is assuming that the

Demand for education at GSU is inelastic

Which of the following is correct

If demand is elastic, a decrease in price will increase total revenue

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus

The demand for peanuts is inelastic

Which of the following is correct?

If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction

The demand schedules for such products as eggs, bread, and electricity tend to be

Relatively price inelastic

The elasticity of demand for a product is likely to be greater

The greater the amount of time over which buyers adjust to a price change

We would expect

The demand for Coca-Cola to be more price elastic than the demand for soft drinks in general

The narrower the definition of a product

The larger the number of substitutes and the greater the price elasticity of demand

The more time consumers have to adjust to a change in price

The greater will be the price elasticity of demand

The demand for autos is likely to be

Less price elastic than the demand for Honda Accords

Price elasticity of demand is generally

Greater in the long run than in the short run

Which of the following generalizations is NOT correct

The price elasticity of demand is greater for necessities than it is for luxuries

If price and total revenue vary in opposite directions, demand is

Relatively elastic

The demand for a luxury good whose purchase would exhaust a big portion of one’s income is

Relatively price elastic

The demand for a necessity whose cost is a small portion of one’s total income is

Relatively price inelastic

The price elasticity of supply measures how

Responsive the quantity supplied of X is to changes in the price of X

The main determinant of elasticity of supply is the

Amount of time the producer has to adjust inputs in response to a price change

Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price

Will increase but equilibrium quantity will be unchanged

The supply of product X is elastic if the price of X rises by

5% and the quantity supplied rises by 7%

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by

7% and the quantity supplied rises by 5%

The elasticity of supply of product X is unitary if the price of X rises by

8% and the quantity supplied rises by 8%

The supply of product X is perfectly inelastic if the price of X rises by

10% and the quantity supplied stays the same

It takes a considerable amount of time to increase the production of pork. This implies that

The short-run supply curve for pork is less elastic than the long-run supply curve for pork

Suppose that the price of product X rises by 20% and the quantity supplied of X increases by 15%. The coefficient of price elasticity of supply for good X is

Less than 1 and therefore supply is inelastic

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

equilibrium quantity but equilibrium price will be unchanged

Suppose the price of a product rises and the total revenue of sellers increases

No conclusion can be reached with respect to the elasticity of supply

Supply curves tend to be

More elastic in the long run because there is time for firms to enter or leave the industry

For an increase in demand the price effect is smallest and the quantity effect is largest

In the long run

A supply curve that is vertical straight line indicates that

A change in price will have no effect on the quantity supplied

A supply curve that is parallel to the horizontal axis suggests that

A change in demand will change the equilibrium quantity but not the price

An increase in demand will increase equilibrium price to a greater extent

The less elastic the supply curve

The supply of known Monet painting is

Perfectly inelastic

Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens’ management charges

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