Chapter 5 Microeconomics (Exam 2)

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  1. The most important determinant of demand elasticity is... 
    the number and closeness of substitutes.
  2. If expenditures on a good constitute a fairly large proportion of a consumer's budget, then...
     a price change will have a large effect on the consumer's real income
  3. Income elasticity of demand 
    the percentage change in quantity demanded divided by the percentage change in income
  4. Inferior goods 
    Demand for good falls as income increases and they have a negative income elasticity of demand.
  5. Normal goods 
    Goods with a positive income elasticity of demand, which means that demand for such goods increases as income increase
  6. Cross-price elasticity of demand 
    measures the percentage change in quantity demanded of one good divided by the percentage change in price of another good
  7. Price elasticity of demand is defined as
    the percentage change in quantity demanded divided by the percentage change in price.
  8. If demand is price elastic, then
     total revenue will increase if the price falls.
  9. If demand is price elastic and price decreases, then
    the extra revenues from the extra units sold exceed the loss in revenues from the lower price.
  10. If a demand curve has an elasticity of demand of 1.0 everywhere, then a 40-percent change in price will
    not cause a change in total revenue.
  11. Price elasticity of demand is greater
    the greater the availability of close substitutes.
  12. When expenditures on a certain good make up a large proportion of your budget,
    demand is price elastic because an increase in price has a large effect on your ability to buy the good.
  13. The greatest response to a price increase for a good is likely to be
     after a year. 
  14. Price elasticity of demand increases over time because
    the ability to substitute away from higher-priced goods increases over time.
  15. Salt has a low elasticity of demand because
    it has few close substitutes and it is a small fraction of a consumer's budget. 
  16. As time increases
     both demand and supply become more elastic.
  17. Suppose the government raises the tax on a gallon of gasoline by 20 percent. Then we would expect
    tax revenues to rise sharply almost immediately, but to decline from the new levels after a few years.
  18. A firm's revenues are the largest possible when it operates on
    the point on its demand curve where the elasticity of demand equals 1.0. 
  19. A unit-elastic supply curve is
    a straight line through the origin.
  20. Suppose demand increases with rising income, but by a smaller percentage than the increase in income. In this case,
    the income elasticity of demand is between zero and 1.0. 
  21. If the income elasticity of demand is very high, we expect the price elasticity of demand to be
  22. The cross-price elasticity of demand indicates
    whether two goods are substitutes or complements
  23. A product has a large negative cross-price elasticity with several other products. We would expect the product's price elasticity of demand to be
  24. Governments tend to tax goods with
    inelastic demands because they want tax revenues to be large
Card Set:
Chapter 5 Microeconomics (Exam 2)
2012-11-07 19:07:47
Chapter Microeconomics

Chapter 5 Microeconomics (Exam 2)
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