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Chapter 6_StudyGuide

# Chapter 6_StudyGuide - 1 Suppose the income elasticity of...

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1. Suppose the income elasticity of demand for toys is +2.00. This means that: a 10 percent increase in income will increase the purchase of toys by 20 percent. 2. The coefficient of price elasticity is 0.2. Demand is thus: relatively inelastic 3. If the supply of a product is inelastic, the price elasticity coefficient of supply is: less than one 4. A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from \$5 to \$4. It was also found that total revenue decreased when price was raised from \$5 to \$6. Thus, the demand for pizza is elastic above \$5 and inelastic below \$5. 5. If the price elasticity of demand for a product is 2.5, then a price cut from \$2.00 to \$1.80 will: increase the quantity demanded by about 25 percent. 6. Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession? Plasma screen and LCD TVs (+4.2) 7. Producer surplus: is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. 8. The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to: decrease by approximately 12 percent. 9. Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is: relatively inelastic 10. The demand schedules for such products as eggs, bread, and electricity tend to be: relatively price inelastic 11. The demand for autos is likely to be: less elastic than the demand for Honda Accords

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