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26 Cards in this Set

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 Suppose that as the price of a good rises from \$3.90 to \$4.10, the quantity demanded falls from 210 to 190. Then the price elasticity of demand is: 2 While it is relatively easy to shift land from production from one type of grain to another, the process takes a considerable amount of time. This implies that: the supply of barley is more elastic in the long run than the short run If the short run supply of good X is perfectly inelastic the short-run supply curve graphs as a vertical line Refer to the diagram. If total revenue at price P3 is the same at price P2, the in the P2P3 price range, demand is: of unit elasticity An increase in demand for a product whose supply is perfectly elastic will increase quantity but leave price unchanged Suppose there is an inverse relationship between the price of one good and the quantity demanded of another. We could conclude that the cross elasticity of demand is negative and the two goods are complements Suppose that a 2% increase in income in the economy decreases the quantity of gadgets demanded by 1% at every possible price. This implies that: income elasticity is negative and gadgets are an inferior good Assume that the price of product Y decreases by 5% and the quantity supplied decreases by 2%. The coefficient of price elasticity of supply for good Y is: less than one and therefore supply is inelastic Refer to the diagram. Over the range of P1 to P2 we know that demand is: elastic because area D exceeds area A The maker of a particular breakfast cereal found that increasing the price from \$3.00 to \$3.25 per box had no impact on total revenue, but increasing the price further to \$3.50 reduced total revenue by 2%. Thus, the demand for the cereal is: unit elastic over the range \$3.00 to \$3.25 and elastic over the range \$3.25 to \$3.50 The cross price elasticity of demand between two goods is reported to be +0.2. This implies that: the two goods are substitutes Which of the following is likely to have the most elastic demand? Food Fruit Bananas Dole Brand Bananas Dole brand bananas If a decrease in price increases total revenue: demand is elastic Use the following table to answer the next question. The data represent the demand schedule for a concert to be held in an arena that holds 5000 people. Price per ticket -Quality demanded \$13 1,000 11 2,000 9 3,000 7 4,000 5 5,000 3 6,000 \$7 per ticket The price elasticity of demand for gadgets is 1.20. All else equal, a 2% reduction in the price of gadgets will increase quantity demanded by: 2.4% A firm finds that its price elasticity of demand is 4.0. Currently, the firm is selling 2000 units per month at \$5 per unit. If it wishes to increases its sales by 10%, it must lower its price by: 2.5% A perfectly elastic supply curve graphs as a horizontal line The greater the elasticity of supply: the more an increase in demand will increase quantity If demand is inelastic: an increase in price will increase total revenue If a 12% price reduction causes quantity demand to rise by 12%: total revenue will remain constant A manufacturing firm lowers its price by 3% and finds its revenue has decreased. Which of the following best explains this outcome? Demand elasticity is less than one Suppose price rises from \$15 to \$17 and quantity demanded decreases by 20%. We can conclude: total revenue will decrease If demand is a downward-sloping straight line with slope of -2: demand is elastic on the upper half of the diagram; inelastic on the lower half Suppose legalization--and subsequent taxation--of heroin and cocaine reduces their prices by 50%. Estimates suggest the total quantity of heroin and cocaine demanded would rise by 83% and 42%, respectively. Consequently, legalization would: increase total expenditures on heroine and decrease total expenditures on cocaine Each of two firms willingly supply 25,000 gadgets a month at a price of \$13. If the price were to fall to \$11, one of the firms would decrease its monthly production by 1,500 and the other would decrease its monthly production by 2,500. If these are the only two producers, the elasticity of supply in this market is 0.5 The cross elasticity of demand between root beer and cola is likely to be: a positive number