Liberty University ECON 213 InQuizitive chapter 4 complete solutions correct answers updated

Liberty University ECON 213 InQuizitive chapter 4 complete solutions correct answers updated

Chapter 4: Elasticity

Label each pair of products with the correct cross-price elasticity of demand.

What graph would you expect to illustrate the price elasticity of demand for life-saving heart surgery?

2.

As the prices in markets change, buyers and sellers respond in different ways according to how much time they have to react. Match the time period to its correct description. Buyers have a significant amount of time to adjust to a change in the market. Demand is elastic. Buyers have no time to adjust to a change in the market. Demand is inelastic. Demand is somewhat elastic. Buyers have some time to adjust to a change in the market.

3.

Consider the market for oil. As shown, a shift in the demand curve causes a price increase, followed by a price drop because long-run supply is more elastic than short-term supply. What role does the elasticity of demand play in the second price movement?

4.

Consider the supply curve for bottles of soda. Identify each event as causing either a shift in supply or a movement along the supply curve.

5.

Fill in the blanks to complete the passage comparing the cross-price elasticity of demand for two products that are substitutes with that of two products that are complements.

Consider two goods that are substitutes. A price increase for one good will cause the quantity demanded of that good to –. The quantity demanded of the substitute good will –. When two goods are complements of each other, a price – for either product will cause – of both goods to decline.

6.

The cross-price elasticity of demand for jeans and textbooks is zero because the two products have no particular relationship.

7.

Determine the price elasticity of demand for a microwave that experienced a 20% drop in price and a 50% increase in weekly demand quantity.

8.

Drag the products to the demand curve that might represent their price elasticity of demand.

9.

The graph shows the short- and long-run price elasticity of demand and supply in a situation where demand for corn has increased. Match each label on the graph to the appropriate description.

10.

How does an increase of income affect spending on necessities and luxuries? As income increases, spending on luxuries increases slowly, but spending on necessities increases dramatically. As income increases, spending on luxuries increases dramatically, but spending on necessities increases slowly. As income increases, spending on luxuries increases dramatically and spending on necessities remains unchanged. As income increases, spending on necessities increases dramatically and spending on luxuries remains unchanged.

11.

How does the existence of substitutes affect the price elasticity of demand? If there are many substitutes, the price elasticity of the good will be elastic, The existence of substitutes leads to a situation with perfect elasticity, the existence of substitutes makes the price elasticity of demand inelastic, the existence of substitutes leads to higher prices in the marketplace.

12.

Explain how price elasticity of demand is related to total revenue.

If a business sees that demand for its product is –, it makes sense to lower the price in order to – revenue. However, if demand is –, lowering the price will not increase revenue.

13.

If demand for oil increases, what can we assume about the price elasticity of supply and demand?

14.

Explain why oceanfront property is an example of a product with a perfectly inelastic price elasticity of supply.

If the price of oceanfront property increases, the quantity – for land will stay the same. As a result, the price elasticity of – will be –.

15.

In the – run, a producer may have difficulty increasing its –, which makes supply –. However, in the – run the producer may be able to increase the quantity supplied to make its supply more –.

17.

In the figure, which determinants of the price elasticity of supply do S1, S2, and S3 depict?

18.

Jenna is looking to buy a new computer. When would the price elasticity of demand be most elastic for her computer? Order the situations from most elastic to most inelastic.

19.

Match the price elasticity of supply to the product it describes.

20.

Match the product to its correct income elasticity.

21.

Match the type of demand to the effect on total revenue if a producer lowered the purchase price of its product.

22.

The price elasticity of     equals the percentage change in      divided by the percentage change in    . When the percentage change in the quantity demanded is larger than the percentage change in price, the demand is    .

23.

The price elasticity of demand is given by this equation:

When you are using this equation, what does it mean when you obtain a zero in the numerator?

24.

Why do economists use the midpoint method to calculate the price elasticity of demand between demand/price combination (Q1, P1) and combination (Q2, P2)?

A simple calculation of the price elasticity of demand will yield – results depending on whether one considers the change as going from (Q1, P1) to (Q2, P2) or in the reverse direction. The midpoint method gives the same answer either way because it uses – price and – quantity as the basis for the – change calculations.

25.

Suppose that due to unfavorable growing conditions, this year’s global coffee crop was unusually small. What can we assume about the short-run price elasticity of supply and demand for coffee?

26.

Total revenue is calculated by subtracting the total costs from the price.

27.

Use the midpoint method to calculate the price elasticity of demand for potato chips that increased in price from $2.00 to $3.00. The quantity demanded decreased from 100 bags a week to 50 bags a week at the local grocery store. Round to one decimal place.

28.

Use the midpoint method to calculate the price elasticity of supply for tablet computers, using the following information: Q1 = 10, P1 = 100 Q2 = 30, P2 = 150

29.

Using the midpoint method, find the cross-price elasticity of demand for FedEx and UPS overnight shipping if the price of FedEx increased from $65 to $75 and the quantity demanded of UPS went up from 1.2 million packages per day to 1.3 million. Round to two decimal places as necessary.

30.

What are some strategies producers can use to maintain an elastic supply?

31.

What are the determinants of the price elasticity of supply?

32.

What correctly describes the income elasticities of necessities? Necessities have income elasticities greater than 1. Necessities have income elasticities between 0 and 1. Necessities do not have income elasticity. Necessities have income elasticities less than 0.

33.

What does the price elasticity of supply measure? The responsiveness of the quantity supplied to a change in price, how social class affects spending, the responsiveness of buyers to changes in price, how income affects spending

34.

When consumers are unresponsive, what does that mean? When consumers are unresponsive, what does that mean?

They don’t notice that a new good has been introduced to the market. Sellers have charged too much for their product or service. The demand has failed to keep up with the supply of a particular good or service. They are unwilling to change their behavior, even when the price of a good or service changes.

35.

Fill in the blanks to complete the passage about income and inferior goods.

When consumers have more money, they are – likely to purchase inferior goods. When this is the case, it means that – elasticity of demand is –: as income goes up, demand goes –.

36.

Describe how price elasticity of demand is different for necessities versus luxury goods.

When the price of a necessity increases, demand is likely to be – because consumers – that product to survive. However, when the price of a luxury good increases, consumers may – because the good is not crucial to survival. Thus, the demand would be –.

37.

Which determinants influence whether demand is elastic or inelastic? the products and services used by people in the consumers’ peer groups, advertising associated with the change in price, time and the adjustment process, necessities versus luxury goods, the share of the budget spent on the good, the existence of substitutes

38.

Which products would you expect to have a higher price elasticity of demand? Order them from most inelastic to most elastic.

39.

Why might a producer be willing to sell a product at a price that leads to little or no profit on that product? The producer might also sell complementary products. There are few alternatives for the product. The producer has a very limited supply of the product. Demand for their product is very high.

40.

You can expect the price elasticity of demand to be more elastic for a car than for a restaurant meal.