ECON Mod 4

Demand is said to be ____ when the quantity demanded changes the same proportion as the price.
unit elastic
Total revenue represents the amount that:
sellers receive for a good or service which is computed as PxQ.
If an increase in price causes total expenditure on a product to decrease, then the price elasticity of demand is:
elastic
For a given increase in price, the greater is the elasticity of supply, the greater is the resulting
increase in quantity supplied
A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The demand curve facing this firm is
inelastic.
The current supply of Rembrandt paintings
is perfectly inelastic

Because Rembrandt died in 1669, the quantity of his paintings is fixed. As such, the supply of Rembrandt’s paintings cannot be increased. Buyers can offer one million or one hundred million dollars, and it does not matter, only a fixed amount of Rembrandt’s paintings exist. So, its supply is a vertical line, perfectly inelastic.

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A secondary effect of an action that may occur after the initial effects is known as a(n):
unintended consequence.
A government mandated price increase for doodads will:
increase the quantity of doodads supplied but decrease the quantity of doodads demanded.

A government mandated price increase for doodads has to take the form of a price floor, a legal minimum above the equilibrium price as to make sure it is binding. As a result, a surplus ensues as quantity supplied is greater than quantity demanded. Because the price increases above the equilibrium price, then quantity supplied increases (an upward movement along the supply curve) and quantity demanded decreases (a downward movement along the demand curve).

A 25% decrease in the price of breakfast cereal leads to a 20% increase in the quantity of cereal demanded. As a result:
total revenue will decrease
If the elasticity of demand coefficient for a good is one-sixth (in absolute terms), we know:
that for every 1% increase in quantity, there will be a 6% decrease in price.
A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses. The administration is considering a tuition increase to help balance the budget. An economist might advise the school to:
-decrease tuition in order to increase revenue by boosting enrollment.

-decrease tuition because demand for courses is elastic

Ceteris paribus, if an 8% increase in price leads to a 6% increase in the quantity supplied, then:
supply is inelastic.

Supply is inelastic since an 8% increase in price leads to a 6% increase in the quantity supplied for a supply elasticity coefficient of 6 / 8 = 0.75.

For supply to be inelastic, an 8% increase in price has to lead to a less than 8% increase in the quantity supplied as to make the supply elasticity coefficient Es < 1. That being the case, the answer is valid.

The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 5% increase in price would lead to:
an 8% decrease in the quantity of gourmet coffee demanded.
To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:
decrease in the volume of sales whether the price is forced up or down.
Unlike its competitors, one glass producer can use its equipment to make either windows for houses or windows for cars. Other things equal, compared to its competitors, its supply curve of windows for cars would be:
more elastic than the supply curves of competitors
Supply is said to be ____ when the quantity supplied is not very responsive to changes in price.
inelastic
When demand is elastic:
-price elasticity of demand is greater than one.
-the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price.
-consumers are relatively responsive to changes in price
Bailey’s Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey’s Barber Shop?
3.0

If percentage change in quantity is 15% and percentage change in price is 5%, price elasticity of demand is 3.00, meaning that a 1% increase in price causes a 3% fall in the number of haircuts at Bailey’s Barber Shop.

Percentage change in quantity demanded %ΔQd = 15%

Percentage change in price %ΔP = 5%

Price elasticity of demand Ed = %ΔQd / %ΔP = 15% / 5% = 3.0

The price elasticity of demand Ed is defined as percentage change in quantity demanded divided by percentage change in price (expressed as an absolute value, with no sign). So, Ed is a number that can take several values. If that number is greater than 1, then the demand is elastic, implying that percentage change in quantity is greater than the percentage change in price, or that the quantity demanded is very responsive to changes in price.

For a given increase in price, a greater elasticity of demand will result in a greater
decrease in quantity demanded

For example, if a good’s price increases by 1%, quantity demanded would decrease by 2%, if price elasticity of demand is 2. However, quantity demanded would decrease by 5%, if price elasticity of demand is 5.

If Stephanie buys a laptop for $700 and the maximum she would have paid was $1,000, which of the following is true?
Stephanie received a consumer surplus of $300.
Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:
a surplus in the wheat market and an increase the quantity of gasoline traded.