Micro Chapter 17

The price elasticity of demand measures how much (HINT LOOK at the top variable q and bottom variable p)

• quantity demanded responds to a change in price.

• quantity demanded responds to a change in income.

• price responds to a change in demand.

• demand responds to a change in supply.

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? (Hint: Price rise did not decrease the demand for the good as much, must be an essential product).

• There are many substitutes for this good.

• The good is a necessity.

• The market for the good is narrowly defined.

• The relevant time horizon is long.

A key determinant of the price elasticity of supply is

• the ability of sellers to change the price of the good they produce.

• the ability of sellers to change the amount of the good they produce.

• how responsive buyers are to changes in sellers' prices.

• the slope of the demand curve.

Income elasticity of demand measures how

• the quantity demanded changes as consumer income changes.

• consumer purchasing power is affected by a change in the price of a good.

• the price of a good is affected when there is a change in consumer income.

• many units of a good a consumer can buy given a certain income level.

Which of the following statements about the consumers’ responses to rising gasoline prices is correct?

• About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars.
• About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars.
• About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.
• Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the short run or the long run.

An advance in farm technology that results in an increased market supply is

• good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for food.
• bad for farmers because total revenue will fall but good for consumers because prices for food will fall.
• good for farmers because it raises prices for their products and also good for consumers because more output is available for consumption.
• bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total revenue.

Water has seen an increase in Quantity Demand 8% this summer, while the price has decreased 12%. Hint: Q CHANGE/P CHANGE

• 1.5 inelastic

• 1.5 elastic

• .67 inelastic

• .67 elastic

Wheat has seen a decrease in QUANTITY Demand of 5%, while the Price has increased 7%. Hint: Q CHANGE/P CHANGE

• 1.4 inelastic

• 1.4 elastic

• .71 inelastic

• .71 elastic

Ford Trucks have seen a increase in QUANTITY Demand of 27%, while the Price has decreased 15%. Hint: Q CHANGE/P CHANGE

• .56 inelastic

• .56 elastic

• 1.8 inelastic

• 1.8 elastic

Prada has seen a increase in demand of 70%, while the price has decreased 35%

• .5 inelastic

• .5 elastic

• 2 inelastic

• 2 elastic