Econ Chapter 6

Products like salt, bread, and electricity are considered essential and necessary for daily life, leading to a relatively price inelastic demand. This means that changes in price do not significantly impact the quantity demanded by consumers.

The correct answer defines price elasticity of supply by indicating how quantity supplied changes in response to price changes. The incorrect answers are not related to the concept of price elasticity of supply.

The elasticity of supply is primarily determined by how quickly producers can adjust their inputs in response to changes in price. The faster producers can respond, the more elastic the supply is.

When the supply of a product is perfectly inelastic, it means that the quantity supplied cannot be changed regardless of the price. In this case, an increase in demand will lead to a higher equilibrium price as consumers are willing to pay more for the limited supply. However, since the supply is fixed, the equilibrium quantity will remain the same.

The supply of known Monet paintings is considered perfectly inelastic as the quantity supplied remains constant regardless of changes in price. This is because there is a limited number of authentic Monet paintings available and no matter how high the price goes, the quantity supplied cannot increase.

The income elasticity of demand measures how a change in income affects the quantity demanded. An income elasticity of demand of 3.00 indicates that lard is an inferior good, meaning that as consumers' incomes increase, they will demand less of lard.

Cross elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. It is calculated by dividing the percentage change in quantity demanded of one good by the percentage change in price of another good. Therefore, the correct formula is percentage change in quantity demanded of X divided by percentage change in price of Y.

The correct answer states that the larger the positive cross elasticity coefficient of demand between products X and Y, the greater their substitutability. Therefore, incorrect answers would suggest contrary relationships such as less substitutability, more complementariness, or no effect on their relationship.

The cross elasticity of demand measures how the quantity demanded of one product changes in response to a change in the price of another product. In the case of dress shirts and ties, they are complementary goods, meaning they are typically consumed together. Therefore, a negative cross elasticity would indicate that the two products are related as complements.

Consumer surplus is the economic measure of the difference between what a consumer is willing to pay for a good or service relative to its market price. It represents the net benefit that consumers receive when they are able to purchase a product for less than the highest price they would be willing to pay.

The price elasticity of demand coefficient measures how responsive the quantity demanded of a good or service is to changes in its price. It helps determine the impact of price changes on consumer demand.

The correct formula for calculating the price elasticity of demand coefficient is to take the percentage change in quantity demanded over the percentage change in price to determine the responsiveness of demand to price changes.

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. A price elasticity of demand of 2.5 indicates that for every 1% decrease in price, quantity demanded will increase by 2.5%. Therefore, a price cut from $2.00 to $1.80 will increase the quantity demanded by about 25 percent.

The elasticity coefficient being less than one is characteristic of inelastic demand, not elastic demand.

A perfectly inelastic demand schedule means that quantity demanded remains constant regardless of price changes, resulting in a vertical line on a graph.

The price elasticity of demand of a straight-line demand curve varies with price ranges. It is elastic in high-price ranges where there is a greater change in quantity demanded compared to price changes. In contrast, it is inelastic in low-price ranges where the change in quantity demanded is small relative to price changes.

When the demand for a product is more inelastic, a leftward shift in the supply curve will lead to a greater increase in equilibrium price due to the fact that consumers are less responsive to changes in price, therefore suppliers can increase prices without losing significant demand.

When the demand for a product is relatively elastic, a 10% decline in price will result in a more than proportionate increase in quantity demanded. This is because consumers are very responsive to price changes when demand is elastic, leading to a larger increase in demand compared to the decrease in price.

Price elasticity of demand measures how sensitive quantity demanded is to a change in price. It is typically negative to indicate the inverse relationship between price and quantity demanded, but the minus sign is often ignored in calculations.

A price elasticity of demand of 0.60 indicates that beef is relatively inelastic, so a 20 percent increase in price would lead to a proportionately smaller decrease in quantity demanded, which in this case is about 12 percent.

When price decreases and quantity demanded increases, it indicates elasticity of demand. In this case, with the price drop leading to a proportionally larger increase in quantity demanded, it shows elastic demand.

As we move upward on a downward-sloping straight-line demand curve, the price elasticity of demand increases continuously due to the changing proportion of price to quantity demanded.

When the price elasticity of demand is inelastic (percentage change in price is greater than the percentage change in quantity demanded), an increase in price will lead to an increase in total revenue. This is because the increase in price compensates for the decrease in quantity demanded, resulting in higher total revenue.

When the price rises and demand is elastic, consumers are more sensitive to price changes, leading to a decrease in quantity demanded that outweighs the increase in price, resulting in a decline in total revenue.

When a price reduction reduces a firm's total revenue, it indicates that the demand for the product is inelastic in this price range. Inelastic demand implies that consumers are not very responsive to changes in price, resulting in a decrease in total revenue when prices are lowered.