Test Answers on ECON HW 6 – Flashcard

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An increase in price causes an increase in total revenue when
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Demand is inelastic
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If the demand for donuts is elastic, then a decrease in the price of donuts will
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increase total revenue of donut sellers.
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Eric produces jewelry boxes. If the demand for jewelry boxes is elastic and Eric wants to increase his total revenue, he should
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Decrease the price of his jewelry box
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Total revenue
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remains unchanged as price increases when demand is unit elastic.
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Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true?
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The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
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Income elasticity of demand measures how
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the quantity demanded changes as consumer income changes.
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You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles,
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yours would be positive and your roommate’s would be negative.
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Muriel’s income elasticity of demand for football tickets is 1.50. All else equal, this means that if her income increases by 20 percent, she will buy
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30% more football tickets
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If two goods are substitutes, their cross-price elasticity will be
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positive
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The price elasticity of supply measures how much
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the quantity supplied responds to changes in the price of the good.
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A key determinant of the price elasticity of supply is
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the ability of sellers to change the amount of the good they produce.
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In the long run, the quantity supplied of most goods
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can respond substantially to a change in price.
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Technological advances in wheat production can lower farmers’ total revenue because the
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demand for wheat is inelastic.
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If corn farmers know that the demand for corn is inelastic, and they want to increase their total revenue, they should all
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reduce the number of acres they plant in corn.
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Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.
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False
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Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.
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True
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If a supply curve is horizontal then supply is said to be perfectly elastic and the price elasticity of supply approaches infinity.
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True

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