Ch004_4e - Answers to Text Questions and Problems Answers...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers to Text Questions and Problems Answers to Review Questions 1. A consumer’s price elasticity of demand for a good depends on the fraction of the consumer’s income spent on that good because a price change alters the real value of the consumer’s purchasing power. This effect grows larger as the share of the consumer’s budget spent on a good increases. LO: 1 AACSB: Analytical Skills Bloom’s: Analysis 2. Elasticity of demand at any point is the price-quantity ratio at that point times the reciprocal of the slope of the demand curve. The slope, and hence its reciprocal, is constant along a straight-line demand curve, but the price quantity ratio—and hence price elasticity of demand—declines as we move down the curve. LO: 2 AACSB: Analytical Skills Bloom’s: Application 3. In order for total spending to fall, the percentage increase in price must be smaller than the percentage decrease in the quantity demanded. This implies that the price elasticity of demand must be elastic since in this case a one percent increase in price causes a more than one percent decrease in quantity demanded. LO: 3 AACSB: Analytical Skills Bloom’s: Application 4. The algebraic sign of the elasticity of demand for a good with respect to its own price conveys no useful information because it is always negative. By contrast, the elasticity of demand for a good with respect to the price of another good can be either positive or negative depending on whether the goods are substitutes or complements, so it is important to keep track of the sign in this case.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern