Chapter 6: Elasticity and Demand a. (3 points) Moving along a demand curve, quan

Question

Chapter 6: Elasticity and Demand a. (3 points) Moving along a demand curve, quantity demanded increases 2.5 percent when price decreases 5 percent. a. The price elasticity of demand is calculated to be b. Given the price elasticity calculated in part a, demand is_(elastic, inelastic, unitary elastic) along this portion of the demand curve. For this interval of demand, the percentage change in quantity in absolute value is value. c. (greater than, less than, equal to) the percentage change in price in absolute b. (4 points) Fill in the blanks: The price elasticity of demand for a firm's product is equal to -2.25 over the range of prices being considered by the firm's manager. If the manager increases the price of the product by 9 percent, the manager predicts the quantity demanded will (increase, decrease) by percent. a. b. The price elasticity of demand for an industry's demand curve is equal to -2.25 for the range of prices over which supply decreases. If total industry output is expected to decrease by 14 percent as a result of the supply decrease, managers in this industry should expect the market price of the good to (increase, decrease) by percent c. (7 points) Fill in the blanks: a. The percentage change in quantity demanded is equal to the percentage change in b. The c. The d When price rises or falls along a demand curve, total revenue always moves in the (6 points) Fill in the blanks: a. when demand is unitary elastic. dominates the when demand is inelastic. dominates the when demand is elastic. effect. direction as the variable having the d. and When demand is inelastic, a decrease in price causes quantity demanded to total revenue to If price rises and total revenue rises, demand must be When demand is elastic, an increase in price causes quantity demanded toand b. c. total revenue to elastic d. If price rises and total revenue stays the same, demand must be

Explanation / Answer

A) a. Price elasticity of demand = percentage change in quantity demanded /percentage change in price

Price elasticity of demand = - 2.5/ 5 = -0.5

b) demand is inelastic along this portion of the demand curve. Since the absolute value of price elasticity of demand is less than 1 so it is inelastic.

c) percentage change in quantity is less than the percentage change in price

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