Chapter 5 - MICRO

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is ________.

• a. price elastic

• b. unit price elastic

• c. income elastic

• d. price inelastic

• e. income inelastic

Answer explanation

The demand for a good is considered price elastic when a small percentage increase in price leads to a significant decrease in quantity demanded. Thus, the correct answer is a. price elastic.

The price elasticity of demand is defined as ________.

• a. the percentage change in price of a good divided by the percentage change in the quantity demanded of that good

• b. the percentage change in income divided by the percentage change in the quantity demanded

• c. the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good

• d. the percentage change in the quantity demanded divided by the percentage change in income

• e. none of the answer choices

Answer explanation

The price elasticity of demand measures how much the quantity demanded changes in response to a price change. Thus, it is defined as the percentage change in the quantity demanded divided by the percentage change in price, making option c correct.

In general, a flatter demand curve is more likely to be ________.

• a. price elastic

• b. price inelastic

• c. unit price elastic

• d. none of the answer choices

Answer explanation

A flatter demand curve indicates that consumers are more responsive to price changes, meaning that a small change in price leads to a larger change in quantity demanded. This characteristic defines price elasticity, making option a the correct choice.

In general, a steeper supply curve is more likely to be ________.

• a. price elastic

• b. price inelastic

• c. unit price elastic

• d. none of the answer choices

Answer explanation

A steeper supply curve indicates that quantity supplied changes little with price changes, making it less responsive to price fluctuations. Therefore, it is more likely to be price inelastic, which is why the correct answer is b.

Which of the following would cause a demand curve for a good to be price inelastic?

• a. The good is a luxury.

• b. There are a great number of substitutes for the good.

• c. The good is inferior.

• d. The good is a necessity.

Answer explanation

The demand curve for a good is price inelastic when it is a necessity, as consumers will continue to buy it regardless of price changes. This is in contrast to luxuries or goods with many substitutes.

The demand for which of the following is likely to be the most price inelastic?

• a. Greyhound bus tickets

• b. Transportation

• c. Uber rides

• d. Delta airline tickets

Answer explanation

Transportation is a necessity for many people, making its demand less sensitive to price changes compared to the other options, which are more discretionary. Thus, it is likely to be the most price inelastic.

If the cross-price elasticity between two goods is negative, the two goods are likely to be ________.

• a. complements

• b. substitutes

• c. necessities

• d. luxuries

Answer explanation

If the cross-price elasticity is negative, it indicates that when the price of one good rises, the demand for the other good falls. This relationship is characteristic of complements, making option a the correct choice.

If a supply curve for a good is price elastic, then ________.

• a. the quantity supplied is sensitive to changes in the price of that good

• b. the quantity supplied is insensitive to changes in the price of that good

• c. the quantity demanded is sensitive to changes in the price of that good

• d. the quantity demanded is insensitive to changes in the price of that good

Answer explanation

If a supply curve is price elastic, it means that small changes in price lead to significant changes in the quantity supplied. Therefore, the correct choice is a: the quantity supplied is sensitive to changes in the price of that good.

If a farmer must sell all of their daily harvest of vegetables before they spoil for whatever price they are offered, once the vegetables are picked, the farmer's price elasticity of supply for fresh vegetables is ________.

• a. infinite

• b. zero

• c. unable to be determined from this information

• d. one

Answer explanation

The farmer must sell all vegetables immediately to prevent spoilage, meaning they cannot adjust supply based on price. This results in a price elasticity of supply of zero, as supply is fixed regardless of price changes.

A decrease in supply (shift to the left) will increase total revenue in that market if ________.

• a. supply is price elastic

• b. demand is price elastic

• c. demand is price inelastic

• d. supply is price inelastic

Answer explanation

A decrease in supply raises prices. If demand is price inelastic (option c), consumers will continue to buy despite higher prices, leading to increased total revenue. Inelastic demand means quantity demanded changes little with price changes.