Exam 4: Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

Suppose one market demand (D₁)has a price elasticity of .65 and a second market demand (D₂)has a price elasticity of .89.In comparing price elasticities of demand,it is proper to say that

Explain why economists care about the price elasticity of supply.What does it tell us?

Give four instances that cause price elasticity to vary.Explain.

The measurement of the price elasticity of demand is unit free.

The price elasticity of demand is negative because the demand curve slopes downward.

If a firm lowers the price of a product when demand is elastic,then the firm should expect total revenue to

If price falls by 10 percent,total revenue

A perfectly elastic demand curve has a price elasticity

To say that gasoline has a low price elasticity of demand is to say the quantity demanded of gasoline

When price rises,total revenue

For a given reduction in the supply of oil,the equilibrium price of oil will

When a given percentage change in the price leads to a larger percentage change in the quantity supplied,supply is said to be

Because people can adapt to paying higher prices over time,the price elasticity of demand is lower in the long run than in the short run.

The elasticity of demand changes

Which of the following formulas is a correct expression of the price elasticity of supply?

If a consumer is spending a large portion of his or her income on a good,then the demand for the good is inelastic.

When a higher price cannot bring about any increase in the quantity supplied,the supply is

A unit elastic supply curve is vertical.

If a good is considered to be an inferior good,its income elasticity of demand is

The price elasticity of supply is a unit-free measure and uses percentage changes in quantity supplied and price to measure how sensitive supply is to a change in price.