Chapter 6, 7 & 9: Homework – Flashcards
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What are the major determinants of price elasticity of demand?
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Substitutability
Proportion of income
Luxuries versus necessities
Time
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Elastic or Inelastic:
Bottled water
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Elastic
This good is likely elastic because there are number of substitutes
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Elastic or Inelastic:
Toothpaste:
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Inelastic
This good is likely inelastic because there aren't many substitutes and it is a necessity (in economic terms)
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Elastic or Inelastic:
Crest toothpaste
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Elastic
This specific brand of the good is a likely elastic. There are a number of substitutes for this specific brand of the good.
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Elastic or Inelastic:
Ketchup
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Inelastic
This good is likely inelastic. There aren't many substitutes for ketchup (for people who like ketchup) and it makes up a small percentage of income.
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Elastic or Inelastic:
Diamond bracelets:
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Elastic
This good is likely elastic because it is a luxury good and may make up a large fraction of income (more than ketchup)
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Elastic or Inelastic:
Microsoft's Windows Operating System
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Inelastic
This good is likely inelastic because there aren't many substitutes for this good and it has become a necessity in a number of workplaces
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Price and total revenue move in the _____ direction when demand is elastic. This is because the percentage change in quantity is greater than the percentage change in price.
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Opposite
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Total Revenue=
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Price X Quantity
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When demand is _____, price and total revenue move in the same direction because the percentage change in quantity is less than the percentage change in price.
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Inelastic
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How would the following change in price affect total revenue?
Price falls and demand is inelastic:
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Decrease
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How would the following change in price affect total revenue?
Price rises and demand is elastic:
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Decrease
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How would the following change in price affect total revenue?
Price rises and demand is inelastic:
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Increase
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How would the following change in price affect total revenue?
Price falls and demand is elastic:
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Increase
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How would the following change in price affect total revenue?
Price falls and demand is of unit elasticity:
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Remain unchanged
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To calculate elasticity, we use the _____ formula.
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Midpoint
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Elasticity is the...
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Percentage change in quantity divided by the percentage change in price.
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Suppose that the total revenue received by a company selling basketballs is $600 when the price is set at $15 per basketball and $600 when the price is set at $10 per basketball. Without using the midpoint formula, identify whether demand is elastic, inelastic, or unit elastic over this price range.
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Demand is Unit-elastic over this range because there is no change in total revenue
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Danny is a neighborhood 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $2.25 each, he sells 100. At a price of $1.75 each, he sells 300.
Is demand elastic or inelastic over this price range?
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Elastic
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Demand curves slope downward because, other things held equal:
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A decrease in a product's price raises MU per dollar and makes consumers wish to purchase more units.
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Linda sells 100 bottles of homemade ketchup for $10 each. The cost of the ingredients, the bottles, and the labels was $700. In addition, it took her 20 hours to make the ketchup and to do so she took time off from a job that paid her $20 per hour. Linda's accounting profit is ______ while her economic profit is ______.
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$300; -$100
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Long-run adjustment or short-run adjustment?
Wendy's builds a new restaurant:
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Long-run Adjustment
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Long-run adjustment or short-run adjustment?
Harley-Davidson Corporation hires 200 more production workers:
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Short-run Adjustment
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Long-run adjustment or short-run adjustment?
A farmer increases the amount of fertilizer used on his corn crop:
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Short-run Adjustment
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Long-run adjustment or short-run adjustment?
An Alcoa aluminum plant adds a third shift of workers:
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Short-run Adjustment
