# ECON 2113 CH 5

## Unlock all answers in this set

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Necessities tend to have price inelastic demands, whereas luxuries have price elastic demands
True
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Goods with close substitutes tend to have more elastic demands than do goods without close substitutes
True
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The demand for Rice Krispies is more elastic than the demand for cereal
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
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
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
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
False- elastic
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Demand is inelastic if the elasticity is greater than 1
False- less
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If the price elasticity of demand is equal to 0, demand is unit elastic
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
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
True
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Price elasticity of supply measures how much the quantity supplied responds to changes in the price
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
False- elastic, inelastic
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Supply tends to be more elastic in the short run and more inelastic in the long run
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
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
True
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Elasticity of Demand
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Elasticity of Supply
Sellers
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Elasticity
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
Measures how much the quantity demanded responds to a change in price
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Necessities are more price ______
Inelastic
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Narrowly defined markets (ice cream) have more ______ demand than broadly defined markets (food)
Elastic
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Longer time horizons are more _______
Elastic
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Price Elasticity of Demand Formula
% change in quantity demanded/ % change in price
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e > 1
Elastic
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e < 1
Inelastic
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e = 1
Unit Elasticity
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Slope of Demand Curve
The flatter the demand curve that passes through a given point, the more elastic the demand
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Demand Perfectly Inelastic
(Vertical line) elasticity = 0
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Demand Perfectly Elastic
(Horizontal line) elasticity is infinite
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Price Elasticity of Supply
Measures response of quantity supplied to change in the price
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More fixed supply (beach property, artwork) = more ______
Inelastic
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Supply in short run is more _____
Inelastic
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Price Elasticity of Supply Formula
% change in quantity supplied/ % change in price
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Flatter supply curve = supply is more ____
Elastic
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Supply Perfectly Inelastic
(Vertical line) e = 0
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Supply is Perfectly Elastic
(Horizontal line) e = infinite
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In general, elasticity is the friction that develops between buyers and sellers in a market.
False
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The price elasticity of demand measures a buyer's responsiveness to a change in the price of a good.
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
False
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Demand is said to be elastic if the price of the good responds substantially to changes in demand
False
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When quantity demanded responds only slightly to changes in price, demand is said to be unit elastic
False
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Demand for a good would tend to be more inelastic the fewer the available substitutes
True
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Chocolate Chip Cookie Dough ice cream would tend to have very elastic demand because it must be eaten quickly.
False
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A good will have a more inelastic demand the greater the availability of close substitutes
False
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The greater the price elasticity of demand the more likely the product is a necessity
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
False
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Demand is elastic if elasticity is less than 1
False
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Demand is inelastic if elasticity is less than 1
True
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Demand is unit elastic if elasticity is less than 1
False
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Demand is said to be unit elastic if quantity demanded changes by the same percent as the price.
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
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.
True
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For a horizontal demand curve, slope is undefined and elasticity equals 0.
False
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The difference between slope and elasticity is that slope measures actual changes and elasticity measures percentage changes.
True
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The price elasticity of supply measures how much the quantity supplied responds to changes in input prices.
False
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If the quantity supplied responds only slightly to changes in price, then supply is said to be elastic.
False
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The main determinant of the price elasticity of supply is time.
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.
False
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When a supply curve is relatively flat, the supply is relatively elastic.
True
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If sellers do not respond at all to a change in price, technological advancement must be great
False
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If the elasticity of supply is zero, then supply is very elastic
False
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A decrease in supply will cause the largest increase in price when both supply and demand are inelastic
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.
True
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As elasticity rises, the supply curve gets flatter.
True
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The elasticity of a perfectly elastic supply curve equals 0.
False
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If the elasticity of supply of a product is 2.5, we know that supply is inelastic.