ECO101H1 Lecture Notes - Lecture 7: Toll Bridge, Normal Good, Royal Ontario Museum

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Elasticity of demand: elasticity of demand, definition, alternative cases, linear demand curve. Income elasticity of demand: elasticity varies along a linear demand curve. 3: elasticity of demand and total revenue, elasticity of supply, applications. Technical question at the point where two linear demand curves intersect, do the demand curves have the same price elasticity. Ex: if slope is 1, elasticity = p/q *1 if slope is 2, elasticity = p/q * . Key: understand why (prices) elasticity of demand is so important. Elasticity of demand percent change in quantity demanded/percent change in price. Therefore, in response to an increase in price, total revenue: Unchanged if demand is unit elastic (diagram on page 3) The first shaded area of thin rectangle is the one you"ve given up when raising the price, but you"re getting the bigger area of the rectangle since you"re selling it at a higher price.

Related Questions

1) All else being equal, the more important an item is in buyers' budgets, the more elastic is the demand for the good. (TRUE/FALSE)

2) If the demand curve for a good is a steep, straight line, then the demand for the good is inelastic at every point along that demand curve. (TRUE/FALSE)

3)If the demand for illegal drugs is inelastic, then government efforts to reduce the supply of illegal drugs are likely to cause an increase in total expenditure on them. (TRUE/FALSE)

4) If the demand for mass transit in a city is inelastic, then raising fares will increase mass transit revenue. (TRUE/FALSE)

5)The cross-price elasticity of demand between Levi's blue jeans and Wrangler's blue jeans is most likely positive (TRUE/FALSE)

6) Perfectly inelastic demand occurs when the demand curve is horizontal. (TRUE/FALSE)

7) Among the reasons that farmers' incomes are unstable is _____
A) The supply curve for food can shift dramatically rightward or leftward from year to year.
B) The demand for food is elastic
C) The income elasticity for food is very high
D) All of these
E) None of these

8) If the (absolute value of) the price elasticity of demand for a good is greater than one, then demand for the good is _____
A) Elastic
B) Inelastic
C) Inferior
D) Normal
E) Paranormal

9) As we move leftward along a straight-line demand curve, the (absolute value of the) price elasticity of demand ____
A) Grows smaller
B) Remains constant at zero
C) Remains constant at a value of one
D) Remains constant and equal to the (absolute value of the) slope of the demand curve
E) Grows larger

10) If a good is normal, we know that______
A) income elasticity is positive
B) The good's price elasticity of demand is positive
C) Demand for the good is elastic
D) Demand for the good is inelastic
E) Income elasticity is negative

11) When the price of a good rise by 10%, and nothing else changes, the quantity of the good demanded falls by 5%. The price elasticity of demand for this good is_____
A) -0.5%
B) -5%
C) -5.0%
D) -2.0%
E) 2.0%

12) If the price elasticity of demand for a good is negative, we know that the good _____.
A) Obey's the law of demand
B) Is normal
C) Is inferior
D) Violates the law of demand
E) is inelastically demanded

13) Which of the following would you expect to have the greatest (in absolute value) price elasticity of demand?
A) Clothing
B) Pants
C) Blue jeans
D) Levi's Blue jeans
E) All of these answers would have approximately the same price elasticity of demand.

14) The price elasticity of demand for a good is -2.0 When the price of this good rises, what occurs?
A) Quantity demanded will rise as well
B) The income of those who buy the goodwill increase
C) Total expenditure on this goodwill fall.
D) All of these
E) All of these answers would have approximately the same price elasticity of demand.

turquoiseporpoise766

1) All else being equal, the more imprtant an item is in buyers' budgets, the more elastic is demand for the good. (TRUE/FALSE)

2) If the demand curve for a good is a steep, straight line, then the demand for the good is inelastic at every point along that demand curve. (TRUE/FALSE)

3)If the demand for illegal drugs is inelastic, then government efforts to reduce the supply of illegal drugs are likely to cause an increase in total expenditure on them. (TRUE/FALSE)

4) If the demand for mass transit in a city is inelastic, then raising fares will increase mass transit revenue. (TRUE/FALSE)

5)The cross-price elasticity of demand between Levi's blue jeans and Wrangler's blue jeans is most likely positive (TRUE/FALSE)

6) Perfectly inelastic demand occurs when the demand curve is horizontal. (TRUE/FALSE)

8) If the (absolute value of) the price elasticity of demand for a good is greater than one, then demand for the good is _____
A) Elastic
B) Inelastic
C) Inferior
D) Normal
E) Paranormal

11) When the price of a good rises by 10%, and nothing else changes, the quantity of the good demanded falls by 5%. The price elasticity of demand fort this good is_____
A) -0.5%
B) -5%
C) -5.0%
D) -2.0%
E) 2.0%

14) The price elasticity of demand for a good is -2.0 When the proce of this good rises, what occurs?
A) Quantity demanded will rise as well
B) The income of those who buy the good will increase
C) Total expenditure on this good will fall.
D) All of these
E) All of these answers would have approximately the same price elasticity of demand.

carminewildebeest5

1. Price elasticity of demand is calculated as:

a. the percentage change in quantity demanded divided by the percentage change in price
b. the percentage change in price divided by the percentage change in quantity demanded
c. the absolute change in quantity demanded divided by the absolute change in price.
d. the absolute change in price divided by the absolute change in quantity demanded

2. The price elasticity of demand:

a. is of no use to producers
b. tells producers what will happen to total profit if they change product price
c. tells producers what will happen to quantity supplied if they change product priced.
d. tells producers what will happen to total revenue if they change the product price

3. Along a linear demand curve,

a. both the slope and price elasticity are constant
b. the price elasticity is constant, but the slope varies
c. total revenues are constant
d. the slope is constant, but the price elasticity varies

4. Demand is more elastic:

a. in the short run than in the long run
b. for necessities than for luxuries
c. for food than for hamburgers
d. for goods with many substitutes than for goods with only a few

5. Demand for a necessity, such as food, is:

a. both income and price inelastic
b. income inelastic and price elastic
c. income elastic and price inelastic
d. both income and price elastic

6. The reason economists assume that firms try to maximize economic profit is:

a. over time, firms that don't earn profits will have difficulty securing financing to survive
b. firms in the real world always maximize profit
c. profit is easier to calculate than revenues
d. if a firm fails to earn a profit in its first year, it will go out of business

7. Which of the following is a short-run adjustment?

a. Toyota builds an automobile plant in Kentucky.
b. Faced with increasing enrollment, a private college builds a new school of Business building.
c. Because of staggering losses, three insurance companies exit the industry.
d. People's Bank hires two new tellers to meet the increased demand for customer services.

8. At the point where diminishing marginal returns set in, the slope of the total product curve is:

a. positive and increasing
b. positive and decreasing
c. negative and increasing
d. negative and decreasing

9. Which of the following correctly describes the relationship between the marginal cost and average variable cost curves?:

a. MC is everywhere above AVC
b. AVC is everywhere above MC
c. MC crosses AVC at AVC's minimum point
d. MC crosses AVC at MC's minimum point

10. The shape of the long-run average cost curve reflects
a. market demand
b. economies and diseconomies of scale
c. increasing and diminishing marginal returns
d. the productivity of fixed inputs

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ECO101H1 Lecture Notes - Lecture 7: Toll Bridge, Normal Good, Royal Ontario Museum

ECO101H1 Full Course Notes

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