Ch 6

9 October 2022
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question
Refer to the diagram and assume that price increases from $2 to $10. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about:
answer
.25 and supply is inelastic.
question
Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by:
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B. 2 percent and total expenditures on bread will fall.
question
The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that:
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The railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic
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Refer to the diagrams. In which case would the coefficient of income elasticity be negative?
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b
question
Suppose the price of a product rises and the total revenue of sellers increases.
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No conclusion can be reached with respect to the elasticity of supply.
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When the percentage change in price is greater than the resulting percentage change in quantity demanded:
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an increase in price will increase total revenue.
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Refer to the information. Over the $11-$9 price range, demand is:
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elastic.
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Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is:
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A. negative and therefore X is an inferior good.
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Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is:
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positive, and the good is a normal good.
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Refer to the diagram. In the P3P4 price range, demand is:
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relatively inelastic.
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The demand for a product is inelastic with respect to price if:
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consumers are largely unresponsive to a per unit price change
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Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:
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c
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A supply curve that is a vertical straight line indicates that:
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a change in price will have no effect on the quantity supplied.
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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:
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negative and therefore these goods are complements.
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The basic formula for the price elasticity of demand coefficient is:
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percentage change in quantity demanded/percentage change in price
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Refer to the diagram. The decline in price from P1 to P2 will:
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increase total revenue D-A
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The demand for a luxury good whose purchase would exhaust a big portion of one's income is:
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Relatively price elastic.
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Most demand curves are relatively elastic in the upper-left portion because the original price:
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D. 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.
question
The price elasticity of demand of a straight-line demand curve is:
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elastic in high-price ranges and inelastic in low-price ranges.