# Chpt 4

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### The larger the positive cross elasticity coefficient of demand between products X and Y, the:

greater their substitutability.

### We would expect the cross elasticity of demand between dress shirts and ties to be

negative, indicating complementary goods.

### 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.

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

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

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

20 percent reduction in orice

### Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be:

unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.

### If the income elasticity of demand for lard is -3.00, this means that:

ard is an inferior good.

### Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:

negative and therefore these goods are complements

### The main determinant of elasticity of supply is the:

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

### Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management charges \$7 per ticket:

there will be 1,000 empty seats.

### The price of old baseball cards rises rapidly with increases in demand because:

the supply of old baseball cards is inelastic.

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

consumers are largely unresponsive to a per unit price change

### If a price reduction reduces a firm's total revenue:

the demand for the product is inelastic in this price range

### In which of the following instances will total revenue decline?

price rises and demand is elastic

### Suppose the income elasticity of demand for toys is +2.00. This means that:

a 10 percent increase in income will increase the purchase of toys by 20 percent.

### Answer the next question(s) on the basis of the following demand schedule:Refer to the above data. Which of the following is correct?

Although the slope of the demand curve is constant, price elasticity declines as we move from high to low price ranges.

### 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

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### 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 coefficient of price elasticity is 0.2. Demand is thus

relatively inelastic

### Assume there is an increase in the demand for hand calculators. The subsequent:

increase in price will be greater the greater the inelasticity of supply.

### Refer to the above information and assume the stadium capacity is 5,000. The supply of seats for the game:

is perfectly inelastic.

inelsatic

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### The cross elasticity of demand between two goods is reported to be +0.2. This implies that:

2 goods are substitues

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

7 percent and quantity supplied rises by 5 percent

### Suppose legalizationand subsequent regulation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

unit elastic

### 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 percent per week for an indefinite period of time. We can expect that each successive week:

demand will become less price elastic

### 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

### 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

### The demand for autos is likely to be:

less elastic than the demand for Honda Accords.

### Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

the price of some other product.

### The demand for a necessity whose cost is a small component of one's total income is:

relatively inelastic

less than 1.

### Suppose that when your income increases from \$28,000 to \$30,000 per year, your purchases of X increase from 4 to 5 units because of that income increase. Thus:

the demand for X is elastic with respect to income.

### 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.

### 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

### Which of the following is likely to have the most elastic demand?

Dole brand bananas

### Assume that a 4 percent increase in income in the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is:

positive and therefore X is a normal good.

### Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be:

inelastic for price declines that increase quantity demanded from 6 units to 7 units.

### Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management wanted a full house for the game, it would

set ticket prices at \$5

### Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be

elastic for price increases that reduce quantity demanded from 4 units to 3 units.

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

8 percent and quantity supplied rises by 8 percent.

### We would expect the cross elasticity of demand between Pepsi and Coke to be

positive, indicating substitute goods.

### Amanda buys a ruby for \$330 for which she was willing to pay \$340. The minimum acceptable price to the seller, Tony, was \$140. Amanda experiences:

a consumer surplus of \$10 and Tony experiences a producer surplus of \$190.

### 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

Example: