Measuring Price Elasticity
What is the formula for measuring price elasticity of demand? Percentage change in quantity demanded / Percentage change in price When the price elasticity coefficient is less than 1, the percentage change in quantity demanded is smaller than the change in price. When the price elasticity coefficient is equal to 1, the percentage change in quantity demanded is equal to the change in price. When the price elasticity coefficient is greater than 1, the percentage change in quantity demanded is greater than the change in price.
If a university passed a rule stating that university students must live in university dormitories, what effect would this have on the price elasticity of demand for dorm space? What effect would this …show more content…
have on room rates? The price elasticity of demand would be more inelastic, and room rates would increase.
b. Price and total revenue move in the opposite directions, when the demand is elastic
Determine how the following changes in price would affect total revenue. a. Price falls and demand is inelastic. Total revenue decreases b. Price rises and demand is elastic. Total revenue decreases c.
Price rises and supply is elastic. Total revenue increases d. Price rises and supply is inelastic. Total revenue increases e. Price rises and demand is inelastic. Total revenue increases f. Price falls and demand is elastic. Total revenue increases g. Price falls and demand is unit-elastic. Total revenue remains unchanged
You are chairperson of a state tax commission responsible for establishing a program to raise new revenue through excise taxes. The elasticity of demand would be important to you in determining the products on which the taxes should be levied. Elasticity of demand would be important because when a tax is levied on a product whose demand is highly inelastic , tax revenue would be high
Because of a legal settlement over state health care claims, in 1999 the U.S. tobacco companies had to raise the average price of a pack of cigarettes from $1.95 to $2.45. The decline in cigarette sales was estimated at 8 percent. What does this imply for the elasticity of demand for cigarettes? The price elasticity of demand for cigarettes was inelastic because the price changed by 22.7 percent.
The values indicate that a 1 percent increase in income will increase the quantity of movies demanded by 3.4 …show more content…
percent. If the income elasticity coefficient is negative, it means that the good is inferior so that if income falls, the quantity demanded of the good will rise.
Suppose that the total revenue received by a company selling basketballs is $600 when the price is set at $60 per basketball and $600 when the price is set at $40 per basketball. Without using the midpoint formula, can you tell whether demand is elastic, inelastic, or unit-elastic over this price range? Demand is unit-elastic over this range.
CH5
Market failure is the result of goods that have non-rival and non-excludable characteristics and goods that have external effects . An example of an activity that can be affected by both types of market failures would bea fireworks display that caused some fire damage.
Economists say competitive markets are efficient because by producing up to the point where MB = MC, profits are maximized and the maximum potential consumer surplus and producer surplus is generated. Which of the following statements is true? Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces the consumer surplus. revised 4/11/11
Contrast the characteristics of public goods with those of private goods. Public goods differ from private goods because they are non-rival and non-excludable . Why won’t private firms produce public goods? Private firms will not produce public goods because of low potential profits and the free-rider problem
Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government. a. French fries: market system b. Airport screening: combined market and government c. Court systems: government d. Mail delivery: combined market and government e. Medical care: combined market and government
When negative externalities exist in a market,equilibrium output will be greater than the efficient output. The government could correct the difference between the equilibrium output level and the efficient output level by using a regulation that requires firms to internalize the external costs. An example of an external benefit is safety provided by a city's motion-detector lights
Spillover costs and spillover benefits are also called negative and positive externalities because the unintended spillover costs have a negative impact on third parties and the unintended spillover benefits have a positive impact on third parties.
A tax can correct for a negative externality and a subsidy to producers can correct for a positive externality because the tax shifts the cost onto the firms producing the product and decreases output, and the subsidy increases the supply and increases output.
A subsidy to consumers differs from a subsidy to producers in correcting for a positive externality in that the subsidy to consumers raises the price , but the subsidy to producers lowers the price .
Zoning laws might be justified in dealing with a problem of negative externalities because they can affect business location decisions . In the case of positive externalities, tax breaks for businesses that set up in areas of high unemployment might be justified because additional employment will increase the income tax base. Excise taxes on beer would discourage the consumption of beer and reduce the external costs of such things as drunk driving and domestic violenc
CH6 he principal-agent problem occurs when the interests of the corporate managers and stockholders clash .
In the 1990s, a solution to this problem was to give stock options to the managers .
The solution backfired on some firms when the manager sold the stocks at artificially increased share prices
The explicit costs of going to college include tuition costs and the cost of books, whereas the implicit costs include foregone income
Accounting profit equals sales revenue minus explicit costs.
A normal profit is considered a cost becauseit is the amount required to ensure continued supply of the product.
Marginal product first rises, then declines, and ultimately becomes negative because the returns to the variable input get incrementally smaller since there is a fixed input.
The law of diminishing returns influences short-run costs because MC is found by dividing the wage rate by MP.
Fixed costs and variable costs are distinct in the short run because there are some costs that do not vary with the total output of a given plant size
Advertising expenditures: variable cost
Fuel: variable cost
Interest on company-issued bonds: fixed cost
Shipping charges: variable
cost
Payments for raw materials: variable cost
Real estate taxes: fixed cost
Executive salaries: fixed cost
Insurance premiums: fixed cost
Wage payments: variable cost
Depreciation and obsolescence charges: fixed cost
Sales taxes: variable cost
Rental payments on leased office machinery: fixed cost
If a university passed a rule stating that university students must live in university dormitories, what effect would this have on the price elasticity of demand for dorm space? What effect would this …show more content…
have on room rates? The price elasticity of demand would be more inelastic, and room rates would increase.
b. Price and total revenue move in the opposite directions, when the demand is elastic
Determine how the following changes in price would affect total revenue. a. Price falls and demand is inelastic. Total revenue decreases b. Price rises and demand is elastic. Total revenue decreases c.
Price rises and supply is elastic. Total revenue increases d. Price rises and supply is inelastic. Total revenue increases e. Price rises and demand is inelastic. Total revenue increases f. Price falls and demand is elastic. Total revenue increases g. Price falls and demand is unit-elastic. Total revenue remains unchanged
You are chairperson of a state tax commission responsible for establishing a program to raise new revenue through excise taxes. The elasticity of demand would be important to you in determining the products on which the taxes should be levied. Elasticity of demand would be important because when a tax is levied on a product whose demand is highly inelastic , tax revenue would be high
Because of a legal settlement over state health care claims, in 1999 the U.S. tobacco companies had to raise the average price of a pack of cigarettes from $1.95 to $2.45. The decline in cigarette sales was estimated at 8 percent. What does this imply for the elasticity of demand for cigarettes? The price elasticity of demand for cigarettes was inelastic because the price changed by 22.7 percent.
The values indicate that a 1 percent increase in income will increase the quantity of movies demanded by 3.4 …show more content…
percent. If the income elasticity coefficient is negative, it means that the good is inferior so that if income falls, the quantity demanded of the good will rise.
Suppose that the total revenue received by a company selling basketballs is $600 when the price is set at $60 per basketball and $600 when the price is set at $40 per basketball. Without using the midpoint formula, can you tell whether demand is elastic, inelastic, or unit-elastic over this price range? Demand is unit-elastic over this range.
CH5
Market failure is the result of goods that have non-rival and non-excludable characteristics and goods that have external effects . An example of an activity that can be affected by both types of market failures would bea fireworks display that caused some fire damage.
Economists say competitive markets are efficient because by producing up to the point where MB = MC, profits are maximized and the maximum potential consumer surplus and producer surplus is generated. Which of the following statements is true? Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces the consumer surplus. revised 4/11/11
Contrast the characteristics of public goods with those of private goods. Public goods differ from private goods because they are non-rival and non-excludable . Why won’t private firms produce public goods? Private firms will not produce public goods because of low potential profits and the free-rider problem
Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government. a. French fries: market system b. Airport screening: combined market and government c. Court systems: government d. Mail delivery: combined market and government e. Medical care: combined market and government
When negative externalities exist in a market,equilibrium output will be greater than the efficient output. The government could correct the difference between the equilibrium output level and the efficient output level by using a regulation that requires firms to internalize the external costs. An example of an external benefit is safety provided by a city's motion-detector lights
Spillover costs and spillover benefits are also called negative and positive externalities because the unintended spillover costs have a negative impact on third parties and the unintended spillover benefits have a positive impact on third parties.
A tax can correct for a negative externality and a subsidy to producers can correct for a positive externality because the tax shifts the cost onto the firms producing the product and decreases output, and the subsidy increases the supply and increases output.
A subsidy to consumers differs from a subsidy to producers in correcting for a positive externality in that the subsidy to consumers raises the price , but the subsidy to producers lowers the price .
Zoning laws might be justified in dealing with a problem of negative externalities because they can affect business location decisions . In the case of positive externalities, tax breaks for businesses that set up in areas of high unemployment might be justified because additional employment will increase the income tax base. Excise taxes on beer would discourage the consumption of beer and reduce the external costs of such things as drunk driving and domestic violenc
CH6 he principal-agent problem occurs when the interests of the corporate managers and stockholders clash .
In the 1990s, a solution to this problem was to give stock options to the managers .
The solution backfired on some firms when the manager sold the stocks at artificially increased share prices
The explicit costs of going to college include tuition costs and the cost of books, whereas the implicit costs include foregone income
Accounting profit equals sales revenue minus explicit costs.
A normal profit is considered a cost becauseit is the amount required to ensure continued supply of the product.
Marginal product first rises, then declines, and ultimately becomes negative because the returns to the variable input get incrementally smaller since there is a fixed input.
The law of diminishing returns influences short-run costs because MC is found by dividing the wage rate by MP.
Fixed costs and variable costs are distinct in the short run because there are some costs that do not vary with the total output of a given plant size
Advertising expenditures: variable cost
Fuel: variable cost
Interest on company-issued bonds: fixed cost
Shipping charges: variable
cost
Payments for raw materials: variable cost
Real estate taxes: fixed cost
Executive salaries: fixed cost
Insurance premiums: fixed cost
Wage payments: variable cost
Depreciation and obsolescence charges: fixed cost
Sales taxes: variable cost
Rental payments on leased office machinery: fixed cost