Problem set 2 microeconomics

The price elasticity of demand measures the:

 

responsiveness of quantity demanded to a change in price.

Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price.

inelastic

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased.  What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

The demand for a product is unit elastic.  At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:

5 units

A price cut will increase the total revenue a firm receives if the demand for its product is:

elastic

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

 

increasing the price of game tickets because demand is inelastic.

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

 

cross-price elasticity of demand for iced tea is 2.

A 10% increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded. From this information, we can assume:

 

macaroni and cheese is an inferior good.

The demand for gasoline is more ____________ in the short run than in the long run.

inelastic

If the demand for a music band's concert tickets is inelastic, a given percentage rise in the price will cause a ____________ fall in the quantity demanded so that the total revenue will ____________.

 

smaller; rise

Whats an inferior good

a product for which demand decreases as consumer income increases, and demand increases as consumer income decreases