ECON 2113 CH 5

2 October 2022
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70 test answers

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Necessities tend to have price inelastic demands, whereas luxuries have price elastic demands
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True
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Goods with close substitutes tend to have more elastic demands than do goods without close substitutes
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True
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The demand for Rice Krispies is more elastic than the demand for cereal
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True
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The demand for gasoline will respond more to a change in price over a period of 5 weeks than over a period of 5 years
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False- The demand will respond less
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The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price
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True
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The price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent. The price elasticity of demand is 3
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True- 45/15=3
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Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount
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False- elastic
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Demand is inelastic if the elasticity is greater than 1
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False- less
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If the price elasticity of demand is equal to 0, demand is unit elastic
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False- demand is perfectly inelastic
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The flatter the demand curve that passes through a given point, the more inelastic the demand
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False- the more elastic the demand
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If demand is perfectly inelastic, the demand curve is vertical, and elasticity is equal to 0
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True
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Price elasticity of supply measures how much the quantity supplied responds to changes in the price
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True
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Supply is said to be inelastic if the quantity supplied responds substantially to changes in price, and elastic if the quantity supplied responds only slightly to price
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False- elastic, inelastic
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Supply tends to be more elastic in the short run and more inelastic in the long run
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False- inelastic, elastic
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When the price of knee braces increased by 25%, the Brace Yourself Company increased their quantity supplied of knee braces per week by 75%. BYC's price elasticity of supply of knee braces is .33
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False- 75/25=3
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If a supply curve is horizontal it is said to be perfectly elastic and the price elasticity of supply approaches infinity
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True
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Elasticity of Demand
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Buyers
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Elasticity of Supply
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Sellers
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Elasticity
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a measure of the responsiveness of quantity demanded (or quantity supplied) to one of its determinants (price, income, etc)
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Price Elasticity of Demand
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Measures how much the quantity demanded responds to a change in price
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Necessities are more price ______
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Inelastic
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Narrowly defined markets (ice cream) have more ______ demand than broadly defined markets (food)
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Elastic
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Longer time horizons are more _______
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Elastic
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Price Elasticity of Demand Formula
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% change in quantity demanded/ % change in price
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e > 1
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Elastic
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e < 1
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Inelastic
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e = 1
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Unit Elasticity
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Slope of Demand Curve
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The flatter the demand curve that passes through a given point, the more elastic the demand
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Demand Perfectly Inelastic
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(Vertical line) elasticity = 0
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Demand Perfectly Elastic
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(Horizontal line) elasticity is infinite
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Price Elasticity of Supply
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Measures response of quantity supplied to change in the price
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More fixed supply (beach property, artwork) = more ______
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Inelastic
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Supply in short run is more _____
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Inelastic
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Price Elasticity of Supply Formula
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% change in quantity supplied/ % change in price
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Flatter supply curve = supply is more ____
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Elastic
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Supply Perfectly Inelastic
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(Vertical line) e = 0
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Supply is Perfectly Elastic
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(Horizontal line) e = infinite
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In general, elasticity is the friction that develops between buyers and sellers in a market.
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False
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The price elasticity of demand measures a buyer's responsiveness to a change in the price of a good.
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True
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If a 15 percent increase in price causes a 30 percent decrease in quantity demanded, this product might have no close substitute
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False
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Demand is said to be elastic if the price of the good responds substantially to changes in demand
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False
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When quantity demanded responds only slightly to changes in price, demand is said to be unit elastic
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False
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Demand for a good would tend to be more inelastic the fewer the available substitutes
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True
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Chocolate Chip Cookie Dough ice cream would tend to have very elastic demand because it must be eaten quickly.
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False
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A good will have a more inelastic demand the greater the availability of close substitutes
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False
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The greater the price elasticity of demand the more likely the product is a necessity
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False
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If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a 4.0 percent decrease in the quantity demanded
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False
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Demand is elastic if elasticity is less than 1
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False
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Demand is inelastic if elasticity is less than 1
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True
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Demand is unit elastic if elasticity is less than 1
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False
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Demand is said to be unit elastic if quantity demanded changes by the same percent as the price.
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True
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Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the demand curve will be steeper
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False
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Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth, Alice's demand for banana splits is perfectly inelastic.
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True
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For a horizontal demand curve, slope is undefined and elasticity equals 0.
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False
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The difference between slope and elasticity is that slope measures actual changes and elasticity measures percentage changes.
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True
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The price elasticity of supply measures how much the quantity supplied responds to changes in input prices.
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False
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If the quantity supplied responds only slightly to changes in price, then supply is said to be elastic.
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False
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The main determinant of the price elasticity of supply is time.
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True
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If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is 1/2 and supply is elastic.
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False
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When a supply curve is relatively flat, the supply is relatively elastic.
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True
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If sellers do not respond at all to a change in price, technological advancement must be great
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False
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If the elasticity of supply is zero, then supply is very elastic
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False
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A decrease in supply will cause the largest increase in price when both supply and demand are inelastic
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True
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As the elasticity of supply approaches infinity, very small changes in price will lead to very large changes in quantity supplied.
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True
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As elasticity rises, the supply curve gets flatter.
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True
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The elasticity of a perfectly elastic supply curve equals 0.
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False
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If the elasticity of supply of a product is 2.5, we know that supply is inelastic.
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False
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If the quantity supplied is the same regardless of price, then the supply curve would be elastic.
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False
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Concerning a vertical supply curve, suppliers will not respond to a change in price.
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True
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If two supply curves pass through the same point and one is steep and the other is flat, the steeper supply curve is more inelastic.
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True