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| Question | Answer |
|---|---|
| he price elasticity of demand measures: | The price elasticity of demand measures how sensitive quantity demanded is to a change in price |
| hich of the following most completely describes the concept of price elasticity of demand? | rice elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. |
| uppose that Jasper buys 35 quarts of bottled water each month when the price per quart is $1. When the price declines to $0.60 per quart he buys 45 quarts each month. Find Jasper's price elasticity of demand for water. | Correct. The correct answer is –(10⁄40)⁄(0.40⁄0.80) = –0.50. |
| f the quantity of potatoes demanded rises 2 percent when the price of potatoes declines 10 percent, then the price elasticity of demand is: | Incorrect. The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price, i.e. –0.02⁄0.1 = –0.2 |
| If price decreases and demand is _____ then total revenue will decline. | Incorrect. If price decreases and demand is inelastic then total revenue will decline. |
| hen the demand curve is linear, price elasticity of demand: | Price elasticity of demand decreases as we move down a linear downward sloping demand curve |
| When the absolute value of the price elasticity of demand falls in the range of 0 and 1, demand is said to be _____, when it equals 1, demand is said to be _____, and when the price elasticity of demand is greater than 1, demand is said to be _____. | When the absolute value of the price elasticity of demand falls in the range of 0 and 1, demand is said to be inelastic, when it equals 1, demand is said to be unitary elastic, wen price elasticity of demand>1 demand is said to bdemand is 2 be elstic. |
| Suppose agricultural technology results in increased grain yield for U.S. farmers. The increased supply of grain will drive down grain prices. Because the demand for grain is price elastic, lower prices will result in lower total farm revenue | .Correct. Demand for grain tends to be price inelastic. Hence a decrease in price will reduce total revenue. |
| uppose Katrina always buys exactly 5 Rain Forest Bars each week, regardless of whether they are regularly priced at $1 or on sale for $0.50. Based on this information, what is Katrina's price elasticity of demand for Rain Forest Bars? | Correct. Since Katrina's demand for Rain Forest Bars does not change with a change in price, her price elasticity of demand is zero. |
| hen a comp in substantial image advertising, they r tryin 2cause consumrs to see their product as being unique and distinctive relative to the substitute products made by rival firms. The companies are thus trying to use successful image advertising to: | Correct. By causing consumers to perceive that there are few close substitutes for the product, they are aiming to reduce the price elasticity of demand. |
| hich of the following goods or services is most likely to have an elastic demand in the short run? | Correct. There are many substitutes available for Toyota 4–Runner. Moreover, an automobile purchase is a substantial part of most people's budgets. |
| hich of the following is associated with high price elasticity of demand? | Incorrect. Availay of close substitutes is associated with high price elasticity of demand. If sellers raise the price of the good even slightly, consumers can very easily and willingly swit 2-1 of many close substitutes, substanlly reduc quant demandd. |
| ___, the higher the price elasticity of demand.Correct. The greater the importance of the product in the consumer's budget, the higher the price elasticity of demand. | Correct. The greater the importance of the product in the consumer's budget, the higher the price elasticity of demand. |
| general, the price elasticity of demand for milk will be less than that for Apple's iPod. | Correct. Milk is considered more of a necessity, has fewer substitutes, and constitutes a smaller portion of one's budget than an iPod from Apple. Hence, the price elasticity of demand for milk will be less than that for Apple's iPod |
| When the percentage change in quantity supplied is equal to the percentage change in price, supply is said to be inelastic. | Correct. When the percentage change in quantity supplied is equal to the percentage change in price, supply is said to be unit–elastic |
| uppose Ed's Fine Bottled Water supply 35,000 quarts bottled water/month when price $0.80/quart. When price quart increases to $1.20, supply increased to 45,000 qts. each month. Calculate the absolute value of Ed's price elasticity of supply of water | .Correct. The correct answer is (10,000⁄40,000)⁄(0.40⁄1.00) = 0.63 |
| A perfectly price inelastic supply curve is: | Correct. A perfectly price inelastic supply curve is vertical. |
| f input cost rises significantly when production is increased, a firm's price elasticity of supply will tend to be low. | Incorrect. If input cost rises significantly when production is increased, a firm's price elasticity of supply will tend to be low. |
| he more time a firm gets to adjust to a given price change, the more elastic its supply is. | Correct. The more time a firm gets to adjust to a given price change, the more elastic its supply is. |
| hich of the following is most likely to have a negative income elasticity of demand? | Correct. As incomes rise, people tend to shift away from buying day–old bakery goods and instead buy fresh bakery goods, implying a negative income elasticity |
| he income elasticity of demand for _____ goods tends to be positive, while demand for _____ goods tends to be negative. | Correct. The income elasticity of demand for normal goods tends to be positive, while demand for inferior goods tends to be negative. |
| hich of the following is most likely to have an income elasticity greater than 1 | ?Correct. Fine wine is a luxury good, the consumption of which will be highly sensitive to income. |
| he ratio of the percentage change in the quantity demanded of product x to the percentage change in the price of product y is defined as | :Incorrect. The percentage change in the demand for one good divided by the percentage change in the price of another is called cross–price elasticity of dema |
| hich set of goods is most likely to have the larger cross–price elasticity of demand? | Correct. Coke and Pepsi are substitute carbonated soft drinks, and so the cross–price elasticity will be positive. When the price of Coke rises, the quantity of Pepsi demanded will rise since some Coke drinkers will switch to avoid the price increase. |
| sume Zark n Bora are related products on planet Zappo. It when the price of Zark falls (due to the cyclical nature of the Zark harvest), the demand for Bora quickly rises. On the basis of this information which of the following can be considered true? | Correct. Cheaper Zark induces more Zark consumption (law of demand) and more Bora consumption. Thus they are complements. |
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