Economics

Front 1

If price elasticity of demand is greater than 1, demand is

Back 1

elastic

Front 2

If price elasticity of demand is less than 1, demand is

Back 2

inelastic

Front 3

If price elasticity of demand is equal to 1, demand is

Back 3

unitary elastic

Front 4

If price elasticity of demand is zero, it is

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perfectly inelastic (the quantity demanded does not change no matter what happens to the price, so the demand curve is vertical

Front 5

If price elasticity of demand is infinite, it is

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perfectly inelastic (the quantity demanded falls to zero at any price above the vertical intercept, so the demand curve is horizontal)

Front 6

The demand for a product will be relativly elastic if:

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1. There are good substitues for the product
2. comsumers have time to respond to the price change (it takes time to find alternatives; thus, demand will be more elastic the greater the time period considered.
3. The product represents a large fraction of the consumer's budget

Front 7

How to compute price elasticity of demand from market data

Back 7

divide the percentage change in the quantity by percentage chgange in price (%change in quantity)/(%change in price)

Front 8

High prices or low prices on a demand curve correspond to

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percentage change

Front 9

On the upper part of a linerar demand curve

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demand is elastic

Front 10

On the lower part of a linear demand curve

Back 10

demand is inelastic

Front 11

If the price of elasticity of demand for education at a certain university is known to be 2.40, and the tuition is raised by 10% (from $4,000 to $4,400), we predict a 24% decrease in enrollment

Back 11

2.40= X/10
solve for x

Front 12

If demand is elastic, there is a ______ relationship between price and total revenue.

Back 12

Negative; Consumers will purchase many fewer units, and the price rise on remaining units will not compensate for lost revenues from the reduction in units. Thus, total revenue will rise because the percentage change in quantity is greater than the percentage change in price.

Front 13

If demand is inelastic, there is a ________ relationship between price and total revenue.

Back 13

Positive; Consumers will purchase a few less units, and the price rise on remaining tickets will more than compensate for lost revenue from the reduction in units. Thus, total revenue will rise because the percentage change in quantity is less than the percentage change in price.

Front 14

What is income elasticity of demand?

Back 14

A measure of the responsiveness of the quantity demanded to changes in consumer income

Front 15

The formula for income elasticity of demand

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(%change in quantity demanded)/(%change in income)

Front 16

Goods with positive income elasticities are called _______

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Normal; as income rises, consumers will purchase more of these goods

Front 17

Goods with negative income elasticity are called _______

Back 17

Inferior; as income rises, consumers will purchase less of such goods

Front 18

What is cross elasticity of demand?

Back 18

A measure of the responsiveness of the quantity demanded to changes in the price of a related good. (%change in quantity of X demanded)/(%change in price of Y)

Front 19

Goods with positive cross elasticites are called ______

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Substitutes; as the price of good Y rises, consumers will purchase more of good X

Front 20

Goods with negative cross elasticity are called _______

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Complements; as the price of good Y rises, consumers will purchase less of good X

Front 21

Price elasticity of supply

Back 21

measures the responsiveness of producers to changes in price (%change in quantity supplied)/(%change in price)

Front 22

When the price of milk increases from $2/pint to $2.20/pint, the quantity supplied increases from 100 million gallons to 120 million gallons.

Back 22

The percentage change in price is the absolute change ($.20) divided by the initial quantity ($2.00), which equals 10%
The percent change in quantity is the absolute change (20 million) divided by the initial quantity (100 million), 20%
Thus the price elasticity of supply is (20% / 10%) which equals 2.0, which means it is elastic.

Front 23

If supply is vertical it is

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perfectly inelastic, or has the elasticity of zero. The quantity supplied does not change no matter what happens to the price.

Front 24

If supply is horizontal

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it is perfectly elastic, or has an elasticity of infinity. The quantity supplied falls to zero at any price above the vertical intercept

Front 25

The price-change formula is

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a formula that shows the percentage change in equilibrium price resulting from a change in demand or supply, given values for the price elasticity of supply and the price elasticity of demand.

Front 26

percentage change in equilibrium=

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(%change in demand)/(elasticity of supply+elasticity of demand)

Front 27

Indicate whether you expect demand to be inelastic or elastic and explain your reasoning:
Opera

Back 27

Elastic; many substitute entertainments, a luxury

Front 28

Indicate whether you expect demand to be inelastic or elastic and explain your reasoning:
foreign travel

Back 28

elastic; local, national travel are substitues, a luxury

Front 29

Indicate whether you expect demand to be inelastic or elastic and explain your reasoning:
local telephone service

Back 29

elastic; everyone has a cell phone

Front 30

Indicate whether you expect demand to be inelastic or elastic and explain your reasoning:
DVD rentals

Back 30

elastic; many substitute entertainments

Front 31

Indicate whether you expect demand to be inelastic or elastic and explain your reasoning:
eggs

Back 31

inelastic; no close substitues, a staple food

Front 32

You observe a positive relationship between the price that your store charges for CDs and the total revenue from CDs. Is the demand for your CDs elastic or inelastic?

Back 32

Inelastic; an increase in price increases total revenue, while a decrease in price decreases total revenue

Front 33

Suppose that at the current price, the price elasticity of demand for a campus film series is 1.40. If the objective of the firm society is to maximize its total revenue (price times the number of tickets sold) should it increase or decrease price?

Back 33

Decrease price; Demand is elastic, and, thus the increase in quantity demanded will exceed the decrease in price, and revenues will rise.

Front 34

When the price of paper increases from $100 per ton to $104 per ton, the quantity supplied increases from 200 tons per day to 220 tons per day. What is the price elasticity of supply?

Back 34

There is a 4% change in price and a 10% change in the quantity supplied, so elasticity of supply is 2.5

Front 35

To compute the price elasticity of demand, we divide the percentage change in ________ by the percentage change in _________

Back 35

Quantity;price

Front 36

If a 10% increase in price decreases the quantity demanded by 12%, the price elasticity demanded is ______

Back 36

1.20

Front 37

Explain why the demand for movies on DVDs is more elastic in the long run than in the short run

Back 37

A decrease in the price of DVDs will cause consumers to buy DVD players and switch from videocasettes to DVDs, but this takes some time

Front 38

If the price elasticity of demand is 0.60, a 10% increase in price qill _____ the quantity demanded by _____%

Back 38

decrease;6

Front 39

If an increase in the price of accordions does not change total revenue from accordion sales, what can we infer about the price elasticityt of demand for accordions?

Back 39

The price elasticity is 1.0 ( neither elastic nor inelastic)

Front 40

Suppose the price elasticity of demand for vanity plates in the state of Ohio is 2.60. If the state's objective is to maxiimize its revenue from vanity plates, should it have picked a higher price or a lower one?

Back 40

Demand is elastic, so a decrease in price would increase total revenue