# Elasticity: A Measure of Responsiveness. 1 of of 42

Size: px
Start display at page:

Transcription

1 1 of 42 2 of 42 Elasticity: A Measure of In every large city in the United States, the public bus system runs a deficit: Operating costs exceed revenues from passenger fares. P R E P A R E D B Y FERNANDO QUIJANO, YVONN QUIJANO, AND XIAO XUAN XU 3 of 42 1

2 A P P L Y I N G T H E C O N C E P T S How does the elasticity of demand vary over time? A Closer Look at the Elasticity of Demand for Gasoline How can we use the price elasticity of demand to predict the effects of public policies? Smoking, Drinking, and Elasticity If demand is inelastic, how does an increase in price affect total expenditures? Vanity Plates and Elasticity of Demand If demand is inelastic, how does a decrease in supply affect total expenditures? Drug Prices and Property Crime How does a change in demand affect the equilibrium price? Metropolitan Growth and Housing Prices How does a change in supply affect the equilibrium price? An Import Ban and Shoe Prices 4 of 42 price elasticity of demand (E d ) A measure of the responsiveness of the quantity demanded to changes in price; equal to the absolute value of the percentage change in quantity demanded divided by the percentage change in price. 5 of 42 Computing Percentage Changes and Elasticities 6 of 42 2

3 Price Elasticity and the Demand Curve elastic demand The price elasticity of demand is greater than one, so the percentage change in quantity exceeds the percentage change in price. FIGURE Elasticity and Demand Curves 7 of 42 Price Elasticity and the Demand Curve inelastic demand The price elasticity of demand is less than one, so the percentage change in quantity is less than the percentage change in price. FIGURE (cont d.) Elasticity and Demand Curves 8 of 42 Price Elasticity and the Demand Curve unit elastic demand The price elasticity of demand is one, so the percentage change in quantity equals the percentage change in price. FIGURE (cont d.) Elasticity and Demand Curves 9 of 42 3

4 Price Elasticity and the Demand Curve perfectly inelastic demand The price elasticity of demand is zero. FIGURE (cont d.) Elasticity and Demand Curves 10 of 42 Price Elasticity and the Demand Curve perfectly elastic demand The price elasticity of demand is infinite. FIGURE (cont d.) Elasticity and Demand Curves 11 of 42 Elasticity and the Availability of Substitutes 12 of 42 4

5 Other Determinants of the Price Elasticity of Demand 13 of 42 A P P L I C A T I O N 1 A CLOSER LOOK AT THE ELASTICITY OF DEMAND FOR GASOLINE APPLYING THE CONCEPTS #1: How does the elasticity of demand vary over time? We ve seen that the demand for gasoline is more elastic in the long run, when consumers have more opportunity to respond to changes in price. A recent study explores two sorts of response to higher gasoline prices. First, when the price increases, people drive fewer miles, so there are fewer cars on the road. A second response to higher prices is to switch to more fuelefficient cars. 14 of USING PRICE ELASTICITY TO PREDICT CHANGES IN QUANTITY If we have values for two of the three variables in the elasticity formula, we can compute the value of the third. The three variables are: (1) the price elasticity of demand itself, (2) the percentage change in quantity, and (3) the percentage change in price. Specifically, we can rearrange the elasticity formula: percentage change in quantity demanded = percentage change in price E d 15 of 42 5

6 A P P L I C A T I O N 2 SMOKING, DRINKING, AND ELASTICITY APPLYING THE CONCEPTS #2: How can we use the price elasticity of demand to predict the effects of public policy? We can use the concept of price elasticity to predict the effects of a change in the price of beer on drinking and highway deaths among young adults. The price elasticity of demand for beer among young adults is about If a state imposes a beer tax that increases the price of beer by 10 percent, how will the price hike affect beer consumption among young adults? Using the elasticity formula, we predict that beer consumption will decrease by 13 percent: percentage change in quantity demanded = percentage change in price E d = 10% 1.30 = 13% The number of highway deaths among young adults is roughly proportional to their beer consumption, so the number of deaths will also decrease by 13 percent. Larger taxes would decrease beer consumption and highway deaths by larger amounts. 16 of PRICE ELASTICITY AND TOTAL REVENUE total revenue The money a firm generates from selling its product. total revenue = price per unit quantity sold 17 of PRICE ELASTICITY AND TOTAL REVENUE Elastic versus Inelastic Demand 18 of 42 6

7 4.3 PRICE ELASTICITY AND TOTAL REVENUE Elastic versus Inelastic Demand 19 of PRICE ELASTICITY AND TOTAL REVENUE Market Elasticity versus Elasticity for a Firm The manager of a DVD rental store has asked you to solve a puzzle. According to national studies of the DVD rental market, the price elasticity of demand for DVD rentals is 0.80: A 10 percent increase in price decreases the quantity of DVDs demanded by about 8 percent. In other words, the demand for DVDs is inelastic. Based on this information, the manager of the DVD store increased prices by 20 percent, expecting total revenue to increase. The manager expected the good news (more money per rental) to dominate the bad news (fewer rentals). But in fact total revenue decreased. Why? The key to solving this puzzle is to recognize that the manager can t use the results of a national study to predict the effects of increasing a single store s price. The demand facing an individual store is elastic, so an increase in price will decrease total revenue. 20 of PRICE ELASTICITY AND TOTAL REVENUE Transit Fares and Deficits At the beginning of the chapter, we considered the question of whether increasing the price of bus rides would reduce a city s transit deficit. Here is the exchange between two city officials: Buster: A fare increase is a great idea. We ll collect more money from bus riders, so revenue will increase, and the deficit will shrink. Bessie: Wait a minute, Buster. Haven t you heard about the law of demand? The increase in the bus fare will decrease the number of passengers taking buses, so we ll collect less money, not more, and the deficit will grow. Who s right? It depends on the price elasticity of demand for bus ridership. The price elasticity of demand for bus ridership in the typical city is 0.33, meaning that a 10 percent increase in fares will decrease ridership by only about 3.3 percent. 2 Because demand for bus travel is inelastic, the good news associated with a fare hike (10 percent more revenue per rider) will dominate the bad news (3.3 percent fewer riders), and total fare revenue will increase. In other words, an increase in fares will reduce the transit deficit, so Buster is right. 21 of 42 7

9 4.4 ELASTICITY AND TOTAL REVENUE FOR A LINEAR DEMAND CURVE Price Elasticity along a Linear Demand Curve FIGURE 4.2 Elasticity and Total Revenue along a Linear Demand Curve Demand is elastic along the upper half of a linear demand curve, so an increase in quantity from a decrease in price increases total revenue (between points a and b on the totalrevenue curve). Demand is inelastic along the lower half of a linear demand curve, so an increase in quantity from a decrease in price decreases total revenue (between points b and c). Total revenue is maximized at the midpoint of a linear demand curve (point u), where demand is unit elastic. 25 of ELASTICITY AND TOTAL REVENUE FOR A LINEAR DEMAND CURVE Price Elasticity along a Linear Demand Curve 26 of ELASTICITY AND TOTAL REVENUE FOR A LINEAR DEMAND CURVE Elasticity and Total Revenue for a Linear Demand Curve Panel B of Figure 4.2 shows the relationship between total revenue and the quantity sold for the linear demand curve. Demand is elastic along the upper half of a linear demand curve, which means that a decrease in price will increase the quantity sold by a larger percentage amount. As a result, total revenue will increase, as shown by the positively sloped total-revenue curve between points a and b. In contrast, demand is inelastic along the lower half of a linear demand curve, which means that a decrease in price will increase the quantity sold by a smaller percentage amount. As a result, total revenue will decrease, as shown by the negatively sloped total-revenue curve between points b and c. The total-revenue curve reaches its maximum at the midpoint of the linear demand curve, where demand is unit elastic. In Figure 4.2, demand is unit elastic at point u on the demand curve, so total revenue reaches its maximum at \$1,250 at point b on the total-revenue curve. 27 of 42 9

10 4.5 OTHER ELASTICITIES OF DEMAND Income Elasticity of Demand income elasticity of demand A measure of the responsiveness of demand to changes in consumer income; equal to the percentage change in the quantity demanded divided by the percentage change in income. 28 of OTHER ELASTICITIES OF DEMAND Cross-Price Elasticity of Demand cross-price elasticity of demand A measure of the responsiveness of demand to changes in the price of another good; equal to the percentage change in the quantity demanded of one good (X) divided by the percentage change in the price of another good (Y). 29 of THE PRICE ELASTICITY OF SUPPLY price elasticity of supply A measure of the responsiveness of the quantity supplied to changes in price; equal to the percentage change in quantity supplied divided by the percentage change in price. 30 of 42 10

11 4.6 THE PRICE ELASTICITY OF SUPPLY FIGURE 4.3 The Slope of the Supply Curve and Supply Elasticity (A) The supply curve is relatively steep. A 20 percent increase in price increases the quantity supplied by 2 percent, implying a supply elasticity of (B) The supply curve is relatively flat. A 20 percent increase in price increases the quantity supplied by 50 percent, implying a supply elasticity of of THE PRICE ELASTICITY OF SUPPLY What Determines the Price Elasticity of Supply? The price elasticity of supply is determined by how rapidly production costs increase as the total output of the industry increases. If the marginal cost increases rapidly, the supply curve is relatively steep and the price elasticity is relatively low. 32 of THE PRICE ELASTICITY OF SUPPLY The Role of Time: Short-Run versus Long-Run Supply Elasticity Time is an important factor in determining the price elasticity of supply for a product. The market supply curve is positively sloped because of two responses to an increase in price: Short run. A higher price encourages existing firms to increase their output by purchasing more materials and hiring more workers. Long run. New firms enter the market and existing firms expand their production facilities to produce more output. The short-run response is limited because of the principle of diminishing returns. 33 of 42 11

12 4.6 THE PRICE ELASTICITY OF SUPPLY Extreme Cases: Perfectly Inelastic Supply and Perfectly Elastic Supply FIGURE 4.4 Perfectly Inelastic Supply and Perfectly Elastic Supply In Panel A, the quantity supplied is the same at every price, so the price elasticity of supply is zero. In Panel B, the quantity supplied is infinitely responsive to changes in price, so the price elasticity of supply is infinite. 34 of THE PRICE ELASTICITY OF SUPPLY Extreme Cases: Perfectly Inelastic Supply and Perfectly Elastic Supply perfectly inelastic supply The price elasticity of supply equals zero. perfectly elastic supply The price elasticity of supply is equal to infinity. Predicting Changes in Quantity Supplied 35 of USING ELASTICITIES TO PREDICT CHANGES IN EQUILIBRIUM PRICE The Price Effects of a Change in Demand FIGURE 4.5 An Increase in Demand Increases the Equilibrium Price An increase in demand shifts the demand curve to the right, increasing the equilibrium price. In this case, a 35 percent increase in demand increases the equilibrium price by 10 percent. Using the pricechange formula, 10% = 35% / ( ). 36 of 42 12

13 4.7 USING ELASTICITIES TO PREDICT CHANGES IN EQUILIBRIUM PRICE The Price Effects of a Change in Demand Under what conditions will an increase in demand cause a relatively small increase in price? Small increase in demand. Highly elastic demand. Highly elastic supply. 37 of USING ELASTICITIES TO PREDICT CHANGES IN EQUILIBRIUM PRICE The Price Effects of a Change in Supply FIGURE 4.6 A Decrease in Supply Increases the Equilibrium Price An import restriction on shoes decreases the supply of shoes, shifting the market supply curve to the left and increasing the equilibrium price from \$40 to \$44. In this case, a 30 percent reduction in supply increases the equilibrium price by 10 percent. Using the pricechange formula, 10% = ( 30% / ( )). 38 of 42 A P P L I C A T I O N 5 METROPOLITAN GROWTH AND HOUSING PRICES APPLYING THE CONCEPTS #5: How does a change in demand affect the equilibrium price? We can use the price-change formula to predict the effects of changes in demand on equilibrium prices. The Portland metropolitan area is expected to grow by 12 percent in the next decade. Suppose planners want to predict the effects of population growth on the equilibrium price of housing. At the metropolitan level, the price elasticity of supply is about 5.0 and the price elasticity of demand is 1.0. If the demand for housing is proportional to population, a 12 percent increase in population will increase the equilibrium price of housing by 2 percent: 39 of 42 13

14 4.7 USING ELASTICITIES TO PREDICT CHANGES IN EQUILIBRIUM PRICE The Price Effects of a Change in Supply Under what conditions will a decrease in supply cause a relatively small increase in price? Small decrease in supply. Highly elastic demand. Highly elastic supply. 40 of 42 A P P L I C A T I O N 6 AN IMPORT BAN AND SHOE PRICES APPLYING THE CONCEPTS #6: How does a change in supply affect the equilibrium price? We can use the supply version of the price-change formula to predict the effects of import restrictions on equilibrium prices. Consider a nation that limits shoe imports. Suppose the import restrictions decrease the supply of shoes by 30 percent. To use the price-change formula, we need the price elasticities of supply and demand. Suppose the supply elasticity is 2.3 and, as shown in Table 4.2, the demand elasticity is Plugging these numbers into the price-change formula, we predict a 10 percent increase in price: 41 of 42 K E Y T E R M S cross-price elasticity of demand elastic demand income elasticity of demand inelastic demand perfectly elastic demand perfectly elastic supply perfectly inelastic demand (E d ) perfectly inelastic supply price elasticity of demand price elasticity of supply total revenue unit elastic demand 42 of 42 14

### Lesson-9. Elasticity of Supply and Demand

Lesson-9 Elasticity of Supply and Demand Price Elasticity Businesses know that they face demand curves, but rarely do they know what these curves look like. Yet sometimes a business needs to have a good

### 2007 Thomson South-Western

Elasticity... allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND The price elasticity

What are the effects of a high gas price on buying plans? You can see some of the biggest effects at car dealers lots, where SUVs remain unsold while sub-compacts sell in greater quantities. But how big

### Elasticity and Its Applications. Copyright 2004 South-Western

Elasticity and Its Applications 5 Copyright 2004 South-Western Copyright 2004 South-Western/Thomson Learning Elasticity... allows us to analyze supply and demand with greater precision. is a measure of

### CH 5 sample questions - 80

Class: Date: CH 5 sample questions - 80 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The price elasticity of demand measures the that results from a.

### UNIT 4 PRACTICE EXAM

UNIT 4 PRACTICE EXAM 1. The prices paid for resources affect A. the money incomes of households in the economy B. the allocation of resources among different firms and industries in the economy C. the

### ELASTICITY AND ITS APPLICATION. J. Mao

ELASTICITY AND ITS APPLICATION J. Mao Elasticity Until now, we ve been talking about the direction in which quantities change. A downward-sloping demand: price é è quantity demanded ê In real life it is

### Chapter 6 Elasticity: The Responsiveness of Demand and Supply

hapter 6 Elasticity: The Responsiveness of emand and Supply 1 Price elasticity of demand measures: how responsive to price changes suppliers are. how responsive sales are to changes in the price of a related

### 1.2.3 Price, Income and Cross Elasticities of Demand

1.2.3 Price, Income and Cross Elasticities of Demand Price elasticity of demand The price elasticity of demand is the responsiveness of a change in demand to a change in price. The formula for this is:

### Chapter 6. Elasticity

Chapter 6 Elasticity Both the elasticity coefficient and the total revenue test for measuring price elasticity of demand are presented in this chapter. The text discusses the major determinants of price

### 2013 sample MC questions - 90

Class: Date: 2013 sample MC questions - 90 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The price elasticity of demand measures the that results from

### Ch. 7 outline. 5 principles that underlie consumer behavior

Ch. 7 outline The Fundamentals of Consumer Choice The focus of this chapter is on how consumers allocate (distribute) their income. Prices of goods, relative to one another, have an important role in how

### Chapter 6 Elasticity: The Responsiveness of Demand and Supply

Economics 6 th edition 1 Chapter 6 Elasticity: The Responsiveness of Demand and Supply Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall 2017 The Price Elasticity

### ELASTICITY. Chapt er. Key Concepts

Chapt er 4 ELASTICITY Key Concepts Price Elasticity of Demand The price elasticity of demand is a units-free measure of responsiveness of the quantity demanded of a good to a change in its price when all

### Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply

Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply 1 The Price Elasticity of Demand and Its Measurement We define price elasticity of demand and understand how to measure it. Although

### 1 of 14 5/1/2014 4:56 PM

1 of 14 5/1/2014 4:56 PM Any point on the budget constraint Gives the consumer the highest level of utility. Represent a combination of two goods that are affordable. Represents combinations of two goods

### Jacob: W hat if Framer Jacob has 10% percent of the U.S. wheat production? Is he still a competitive producer?

Microeconomics, Module 7: Competition in the Short Run (Chapter 7) Additional Illustrative Test Questions (The attached PDF file has better formatting.) Updated: June 9, 2005 Question 7.1: Pricing in a

### ECO 100Y L0201 INTRODUCTION TO ECONOMICS. Midterm Test #1

epartment of Economics Prof. Gustavo Indart University of Toronto October 26, 2007 ECO 100Y L0201 INTROUCTION TO ECONOMICS SOLUTIONS Midterm Test #1 LAST NAME FIRST NAME INSTRUCTIONS: STUENT NUMBER 1.

### Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 20 Demand and Supply Elasticity

Roger LeRoy Miller Economics Today Twelfth Edition Chapter 20 Demand and Supply Elasticity Introduction Cigarette consumption is relatively unresponsive to price changes, so higher cigarette taxes do not

### Elasticity of Demand

Elasticity of Demand Elasticity of Demand The law of demand states that an increase in price causes a decrease in quantity demanded (and vice-versa) Question: How much quantity demanded changes in response

### EC 201 Lecture Notes 1 Page 1 of 1

EC 201 Lecture Notes 1 Page 1 of 1 ECON 201 - Macroeconomics Lecture Notes 1 Metropolitan State University Allen Bellas The textbooks for this course are Macroeconomics: Principles and Policy by William

### 6. In the early part of 1998, crude oil prices fell to a nine-year low at \$13.28 a barrel.

Questions 1. Delta Software earned \$10 million this year. Suppose the growth rate of Delta's profits and the interest rate are both constant and Delta will be in business forever. Determine the value of

### MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions

MICROECONOMICS SECTION I Time - 70 minutes 60 Questions Directions: Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best

### Exam 3 Practice Questions

Exam 3 Practice Questions 1. The price elasticity of demand is a measure of: a) how quickly a particular market reaches equilibrium. b) the change in supply associated with lower prices. c) the percent

### The Basics of Supply and Demand

C H A P T E R 2 The Basics of Supply and Demand Prepared by: Fernando & Yvonn Quijano CHAPTER 2 OUTLINE 2.1 Supply and Demand 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities

### Answers to selected Problems and Applications Questions in Mankiw. Chapter 1:

Answers to selected Problems and Applications Questions in Mankiw Chapter 1: 4) If you spend \$100 now instead of saving it for a year and earning 5 percent interest, you are giving up the opportunity to

### Economics : Principles of Microeconomics Spring 2014 Instructor: Robert Munk April 24, Final Exam

Economics 001.01: Principles of Microeconomics Spring 01 Instructor: Robert Munk April, 01 Final Exam Exam Guidelines: The exam consists of 5 multiple choice questions. The exam is closed book and closed

### Bremen School District 228 Social Studies Common Assessment 2: Midterm

Bremen School District 228 Social Studies Common Assessment 2: Midterm AP Microeconomics 55 Minutes 60 Questions Directions: Each of the questions or incomplete statements in this exam is followed by five

### Amherst College Department of Economics Economics 111 Section 3 Fall 2012 Monday, September 17 Lecture: Elasticity

Amherst College epartment of Economics Economics 111 Section 3 Fall 2012 Monday, September 17 Lecture: Elasticity Market emand and Market Supply Curves Market demand curve: How many cans of beer would

### Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

CHAPTER 4 Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity CHAPTER OVERVIEW Price elasticity is one of the most useful concepts in economics. It measures the responsiveness

### Using Elasticity to Predict Cost Incidence. A Definition & A Question. Who pays when payroll tax added to wage rate?

Using Elasticity to Predict Cost Incidence A Definition & A Question Definition of Incidence: the fact of falling upon; in this case, where costs fall A Question for you what does a statement like this

### Microeconomics, Module 4: Consumers in the Marketplace. Practice Problems. (The attached PDF file has better formatting.) Updated: July 10, 2006

Microeconomics, Module 4: Consumers in the Marketplace Practice Problems (The attached PDF file has better formatting.) Updated: July 10, 2006 Exercise 4.1: Price Elasticity of Demand The price of a good

### Lecture 3 Mankiw chapters 4 and 5

In-Class Exam 1 1) Efficiency is not the same than equity. Why? Give an example in which an efficient allocation has been achieved but it creates significant inequalities. 2) Explain each of the following

### Gregory Clark Econ 1A, Fall Midterm 2. Closed book exam. No calculators, cell phones, or other electronic aids allowed.

Gregory Clark Econ 1A, Fall 2012 Midterm 2 Closed book exam. No calculators, cell phones, or other electronic aids allowed. Instructions: Answer these multiple choice questions on your Scantron. Write

### Gregory Clark Econ 1A, Fall Midterm 2. Closed book exam. No cell phones, calculators, or other electronic aids allowed.

Gregory Clark Econ 1A, Fall 2012 Midterm 2 Closed book exam. No cell phones, calculators, or other electronic aids allowed. Instructions: Answer these multiple choice questions on your Scantron. Write

### Interpreting Price Elasticity of Demand

INTRO Go to page: Go to chapter Bookmarks Printed Page 466 Interpreting Price 9 Behind the 48.2 The Price of Supply 48.3 An Menagerie Producer 49.1 Consumer and the 49.2 Producer and the 50.1 Consumer,

### ECON 251. Exam 1 Pink. Fall 2013

ECON 251 1. By definition, opportunity cost is a. The value of the best alternative b. The sum of the value of all available alternatives c. The amount of money it takes to buy an item d. Always greater

### Econ 101, sections 2 and 6, S06 Schroeter Exam #2, Red. Choose the single best answer for each question.

Econ 101, sections 2 and 6, S06 Schroeter Exam #2, Red Choose the single best answer for each question. 1. If the own-price elasticity of demand for a good is -2.0, this implies that consumers would a.

Econ 226 Principles of Microeconomics Fall, 24 Dr. Kathryn Wilson Due Date: Tuesday, September 28 th Homework 2 Answer Key 1. When the of movie admissions increases from \$7 to \$8, the demanded falls from

### Economics N. Gregory Mankiw. The Markets for the Factors of Production. In this chapter, look for the answers to these questions CHAPTER

Seventh Edition Principles of Economics N. Gregory Mankiw CHAPTER 18 The Markets for the Factors of Production In this chapter, look for the answers to these questions hat determines a competitive firm

### Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2

Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided

### The Basics of Supply and Demand

C H A P T E R 2 The Basics of Supply and Demand Prepared by: Fernando & Yvonn Quijano CHAPTER 2 OUTLINE 2.1 Supply and Demand 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities

### ECO 110 Introduction to Economics Professor Mike Rizzo Third COLLECTED Problem Set SOLUTIONS

ECO 110 Introduction to Economics Professor Mike Rizzo Third COLLECTED Problem Set SOLUTIONS This is an assignment that WILL be collected and graded. Once again this assignment is to be completed by your

### Chapter 2 The Basics of Supply and Demand

Chapter 2 The Basics of Supply and Demand Read Pindyck and Rubinfeld (2013), Chapter 2 Microeconomics, 8 h Edition by R.S. Pindyck and D.L. Rubinfeld Adapted by Chairat Aemkulwat for Econ I: 2900111 Chapter

### Economics Challenge Online State Qualification Practice Test. 1. An increase in aggregate demand would tend to result from

1. An increase in aggregate demand would tend to result from A. an increase in tax rates. B. a decrease in consumer spending. C. a decrease in net export spending. D. an increase in business investment.

### Jayashree Sil Submit Questionnaire Supply and Demand First Week: Text: Lecture 1 Slides Lecture 2 Slides & Problem Set 1:

epartment of Economics Economics, ummer Lecture, June, ubmit Questionnaire:To Front of Class (or to end of aisle if seated) First Week: Must be present for roll call each day. If you are trying to switch

### SAMPLE FINAL. Part I - Multiple Choice Questions:

Part I - Multiple Choice Questions: SAMPLE FINAL 1. Which of the following is not a characteristic of a perfectly competitive market? a. Firms are price takers. b. Firms have difficulty entering the market.

### Calculate the explicit, implicit, and the total economic costs of attending college. [5 marks]

PART A INSTRUCTIONS: 1. THERE ARE FOUR (4) QUESTIONS IN THIS PART. 2. ANSWER ALL QUESTIONS. Question 1 a. How does the theory of the firm provide an integrated framework for the analysis of managerial

### Chapter 3 Quantitative Demand Analysis

Chapter 3 Quantitative Demand Analysis EX1: Suppose a 10 percent price decrease causes consumers to increase their purchases by 30%. What s the price elasticity? EX2: Suppose the 10 percent decrease in

### Econ 101, section 3, F06 Schroeter Exam #2, Red. Choose the single best answer for each question.

Econ 101, section 3, F06 Schroeter Exam #2, Red Choose the single best answer for each question. 1. Which of the following is consistent with elastic demand? a. A 10% increase in price results in a 5%

### Elasticity. 2. a. Using the midpoint method, the percent change in the quantity of U.S. winter wheat demanded is 2.0 billion 2.2 billion 2.

Elasticity CHAPTER 6 1. Do you think the price elasticity of demand for Ford sport - utility vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain

### Chapter 4. Elasticity. In this chapter you will learn to. Price Elasticity of Demand

Chapter 4 Elasticity In this chapter you will learn to 1. Explain the meaning of price elasticity of demand and how it is measured. 2. Describe the relationship between demand elasticity and total expenditure.

### MONOPOLY SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes

1 MONOPOLY SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. A market might have a monopoly because: (1) a key resource is owned by a single firm; (2) the government gives a single firm the exclusive right

Study Unit 1 Elasticity Introduction Elasticity of Demand Elasticity and Total Expenditure Income Elasticity of Demand Cross Elasticity of Demand Elasticity of Supply Elasticity of Demand Elasticity of

### JANUARY EXAMINATIONS 2008

No. of Pages: (A) 9 No. of Questions: 38 EC1000A micro 2008 JANUARY EXAMINATIONS 2008 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates

### The Concept of Elasticity. The Elasticity of Demand. Laugher Curve. The Concept of Elasticity. Sign of Price Elasticity.

The oncept of Elasticity The Elasticity of Demand Elasticity is a measure of the responsiveness of one variable to another. The greater the elasticity, the greater the responsiveness. hapter Laugher urve

### Exam 1. Pizzas. (per day) Figure 1

ECONOMICS 10-008 Dr. John Stewart Sept. 30, 2003 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Note a)=1, b)=2

### Chapter 7: Market Structures Section 2

Chapter 7: Market Structures Section 2 Objectives 1. Describe characteristics and give examples of a monopoly. 2. Describe how monopolies, including government monopolies, are formed. 3. Explain how a

### 6/5/2009. Perfect Competition. Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 6/e.

1 of 37 2 of 37 Between 2000 and 2006, housing prices in the United States increased by about 60 percent. P R E P A R E D B Y FERNANDO QUIJANO, YVONN QUIJANO, AND XIAO XUAN XU 3 of 37 1 A P P L Y I N G

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. FIGURE 1-2

Questions of this SAMPLE exam were randomly chosen and may NOT be representative of the difficulty or focus of the actual examination. The professor did NOT review these questions. MULTIPLE CHOICE. Choose

### Figure: Profit Maximizing

Name: Student ID: 1. A manufacturing company that benefits from lower costs per unit as it grows is an example of a firm experiencing: A) scale reduction. B) increasing returns to scale. C) increasing

### Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied \$ \$ \$ \$ \$10 2 8

Econ 101 Summer 2005 In class Assignment 2 Please select the correct answer from the ones given Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied \$ 2 18 3 \$ 4 14 4 \$ 6 10 5 \$ 8 6 6 \$10 2 8

### Multiple Choice Part II, A Part II, B Part III Total

SIMON FRASER UNIVERSITY ECON 103 (2007-2) MIDTERM EXAM NAME Student # Tutorial # Multiple Choice Part II, A Part II, B Part III Total PART I. MULTIPLE CHOICE (56%, 1.75 points each). Answer on the bubble

### Intermediate Microeconomics Midterm

Econ 201 Spring 2016 Name: Student ID: Intermediate Microeconomics Midterm Thursday April 21, 2016 Beomsoo Kim There are 7 questions and 130 possible points. There are 2 pages to this exam. Please write

### Intermediate Microeconomics Spring 2005 Midterm Exam

Intermediate Microeconomics Spring 2005 Midterm Exam K. Yamamoto Answer all the questions in the sections A and B. For the section C, answer any two (2) questions. A. 1.Use the following two statements

### 3. Pierre says that he will spend exactly \$5.00 a day on candy bars, regardless of the price of candy bars. Pierre s demand for candy bars is:

Each Multiple-Choice Question is worth 3 points (Total 60 points). 1. An economy s production of two goods is efficient if: a. both goods are unit elastic. b. all members of society consume equal portions

### (per day) Pizzas. Figure 1

ECONOMICS 10-008 Dr. John Stewart Sept. 25, 2001 Exam 1 Detailed solution for one Form of the Midterm: The general question are the same for all forms but some questions differ in details so correct answer

### 6. The law of diminishing marginal returns begins to take effect at labor input level: a. 0 b. X c. Y d. Z

Chapter 5 MULTIPLE-CHOICE QUESTIONS 1. The short run is defined as a period in which: a. the firm cannot change its output level b. all inputs are variable but technology is fixed c. input prices are fixed

### Sample. Final Exam Sample Instructor: Jin Luo

Final Exam Instructor: Jin Luo Multiple Choice (2 *30 = 60) Identify the letter of the choice that best completes the statement or answers the question. 1. Price takers refer to buyers and sellers in a.

### Elasticity and Its Applications PRINCIPLES OF ECONOMICS (ECON 210) BEN VAN KAMMEN, PHD

Elasticity and Its Applications PRINCIPLES OF ECONOMICS (ECON 210) BEN VAN KAMMEN, PHD Introduction This is the first of 4 chapters that comprise the middle of this course. These chapters are extensions

### ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION

YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even Novermber 12, 2014 FORM 1 Directions 1. Fill in your scantron with your unique-id and the form number

### ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION

YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even Novermber 12, 2014 FORM 3 Directions 1. Fill in your scantron with your unique-id and the form number

### ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION

YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even October 8, 2014 FORM 1 Directions 1. Fill in your scantron with your unique-id and the form number listed

### Practice Test for Final

Name: Class: Date: Practice Test for Final True/False Indicate whether the statement is true or false. 1. A public good or service can be consumed by paying and nonpaying customers alike. 2. An example

### a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

### Introduction to Transportation Systems

Introduction to Transportation Systems 1 PART III: TRAVELER TRANSPORTATION 2 Chapter 28: Urban Public Transportation 3 Urban Public Transportation Introduction LOS Services History Costs Temporal Peaking

### Principles of MicroEconomics: Econ102

Principles of MicroEconomics: Econ102 Price Elasticity of Demand: The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of

### Demand and Supply: The Basics

2 Demand and Supply: The Basics 21 Chapter 2 Introduction The most basic, and in many ways the most lasting, lesson to be learnt from Economics 11 relates to the fundamental concepts of demand and supply

### MIDTERM I. GROUP A Instructions: December 9, 2010

EC101 Sections 04 Fall 2010 NAME: ID #: SECTION: MIDTERM I December 9, 2010 GROUP A Instructions: You have 60 minutes to complete the exam. There will be no extensions. Students are not allowed to go out

Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

### FIRST MIDTERM EXAMINATION ECON 200 Spring 2007 DAY AND TIME YOUR SECTION MEETS:

FIRST MIDTERM EXAMINATION ECON 200 Spring 2007 STUDENT'S NAME: STUDENT'S IDENTIFICATION NUMBER: DAY AND TIME YOUR SECTION MEETS: BEFORE YOU BEGIN PLEASE MAKE SURE THAT YOUR EXAMINATION HAS BEEN DUPLICATED

### Individual and Market Demand

C H A P T E R 4 Individual and Market Demand Prepared by: Fernando & Yvonn Quijano CHAPTER 4 OUTLINE 4.1 Individual Demand 4.2 Income and Substitution Effects 4.3 Market Demand 4.4 Consumer Surplus 4.5

### 1 of 23. Controlling Market Power: Antitrust and Regulation. Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 6/e.

1 of 23 2 of 23 In 1997, a U.S. court blocked the proposed merger of Staples and Office Depot, the nation s two largest office- supply retailers. P R E P A R E D B Y FERNANDO QUIJANO, YVONN QUIJANO, AND

### Name: Eddie Jackson. Course & Section: BU Mid-term

Name: Eddie Jackson Course & Section: BU204 02 Mid-term Date: July 1st, 2012 Questions: 1. Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fresh fish.

Micro Chapter 6 -price ceiling or price cap: government regulation that makes it illegal to charge a price higher then a specified level -effects of the price cap on the market depend on whether the ceiling

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

HW 2 - Micro - Machiorlatti MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is measured by the price elasticity of supply? 1) A) The price

### EC101 DD/EE Practice Final December 15/17, 2015 Version

EC101 DD/EE Practice Final December 15/17, 2015 Version Name (last, first): Student ID: U - - Discussion Section: Signature EC101 DD/EE Practice Final F15 INSTRUCTIONS (***Read Carefully***): ON YOUR QUESTION

### Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1

1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet.

### Class Agenda. Note: As you hand-in your quiz, pick-up graded HWK #1 and HWK #2 (due next Tuesday).

Class 7 Class Agenda 1. Finish discussion on consumer and producer surplus (welfare theory). 2. Elasticity problems (individual/group work to prep for quiz). 3. Quiz #1. Note: As you hand-in your quiz,

### CLEP Microeconomics Practice Test

Practice Test Time 90 Minutes 80 Questions For each of the questions below, choose the best answer from the choices given. 1. In economics, the opportunity cost of an item or entity is (A) the out-of-pocket

### ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION

YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even October 5, 2011 FORM 1 Directions 1. Fill in your scantron with your unique-id and the form number listed

### Elasticity. Shape of the Demand Curve

Lecture 4 Elasticity Eric Doviak Principles of Microeconomics Shape of the Demand Curve When prices change, change in quantity demanded depends on shape of demand curve Consumer 1 has a very elastic demand

### Multiple Choice Identify the letter of the choice that best completes the statement or answers the question.

Final day 2 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. What determines how a change in prices will affect total revenue for a company?

### Eco 685 Graphs, Tables, and Definitions

Eco 685 Graphs, Tables, and Definitions David L. Kelly 1 1 Department of Economics, University of Miami dkelly@miami.edu Fall, 2017 Introduction Introduction Managerial Economics Definition Definition

### 1.201 / / ESD.210 Transportation Systems Analysis: Demand and Economics. Assignment 2

1.201 / 11.545 / ESD.210 Transportation Systems Analysis: Demand and Economics Assignment 2 Question 1 Elasticities and Consumer Surplus In April of 1973, the Massachusetts Bay Transportation Authority

### Chapter 11. Monopoly

Chapter 11 Monopoly Topics Monopoly Profit Maximization. Market Power. Welfare Effects of Monopoly. Cost Advantages That Create Monopolies. Government Actions That Create Monopolies. Government Actions

### 3 CHAPTER OUTLINE CASE FAIR OSTER PEARSON. Demand, Supply, and Market Equilibrium. Input Markets and Output Markets: The Circular Flow

CASE FAIR OSTER PEARSON PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N Prepared by: Fernando Quijano w/shelly Tefft 2of 68 Demand, Supply, and Market Equilibrium 3 CHAPTER OUTLINE Firms and

### Demand- how much of a product consumers are willing and able to buy at a given price during a given period.

Ch. 4 Demand Ch. 4.1 The Demand Curve (Learning Objective- explain the Law of Demand) In your world- What are the goods and services that you demand? What happens to your buying when the price goes up