Question 1

The fewer the substitutes for a good the greater will be the value of the price elasticity of demand coefficient.
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Accepted Answer

The fewer the substitutes for a good, the lower the price elasticity of demand, as consumers have fewer alternatives and are less sensitive to price changes.

Question 2

If demand for a good is price elastic, it must also be income elastic.
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Accepted Answer

Price elasticity and income elasticity measure different aspects of demand; a good can be price elastic without being income elastic.

Question 3

Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more elastic), the larger the burden of a sales tax that is borne by the sellers.
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Accepted Answer

A steeper supply curve indicates a more elastic supply, meaning that sellers are more sensitive to changes in price. When a sales tax is applied, sellers may be unwilling or unable to absorb the increase in cost, and instead pass it on to consumers in the form of higher prices. Therefore, a steeper supply curve indicates that sellers are likely to pass on a larger portion of the tax burden to consumers.

Question 4

Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it.
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Accepted Answer

When there are few close substitutes for a good, demand is less elastic because consumers have fewer alternatives to switch to if the price changes.

Question 5

What happens to total revenue given a price increase and demand is inelastic? Why?

Accepted Answer

The answer of What happens to total revenue given a...

Question 6

Suppose an economist found that total revenues increase for the bus system when fares were raised, the conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic.

Accepted Answer

If total revenues increase when fares are raised, it means that the increase in revenue from the higher fares outweighs the decrease in revenue from the fewer riders due to the higher fares. This suggests that the demand for subway services is inelastic, meaning that even with a price increase, customers are still willing to pay for the services.

Question 7

In response to a price change for good Y, if the cross-elasticity of demand for good Y is negative, good X and good Y are substitutes.
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Accepted Answer

A negative cross-elasticity of demand indicates that goods X and Y are complements, not substitutes.

Question 8

When the government imposes a tax, sellers raise their price by the full amount of the tax.
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Accepted Answer

Sellers do not always raise their price by the full amount of the tax. The extent to which sellers pass on the tax burden to buyers depends on the elasticity of demand and supply in the market. If demand is highly elastic, sellers may bear most of the tax burden as buyers switch to substitute products. Similarly, if supply is highly elastic, sellers may have to absorb most of the tax burden as they compete with other producers.

Question 9

In response to a price change for good Y, if the cross-elasticity of demand for good Y is positive, good X and good Y are complements.
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Accepted Answer

If the cross-elasticity of demand for good Y is positive, good X and good Y are substitutes, not complements. A positive cross-elasticity means that as the price of good Y increases, the quantity demanded of good X also increases, indicating that consumers are substituting good X for good Y. Complementary goods have a negative cross-elasticity, meaning that as the price of one good increases, the demand for its complement decreases.

Question 10

For an inferior good, the income elasticity of demand is negative.
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Accepted Answer

In economics, an inferior good is a good whose demand decreases as the income level of the consumer increases. Therefore, its income elasticity of demand is negative.

Question 11

If a supply curve has a constant slope throughout its length, it must have a constant price elasticity throughout its length. ​
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Accepted Answer

The price elasticity of supply depends on the percentage change in quantity supplied relative to the percentage change in price, not just the slope of the supply curve. A constant slope does not imply constant elasticity, as elasticity also depends on the price and quantity levels.

Question 12

If the income elasticity of demand for a good is negative, the good is an inferior good.
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Accepted Answer

If the income elasticity of demand for a good is negative, it means that as income increases, the quantity demanded of the good decreases. This is characteristic of inferior goods, which are goods for which demand decreases as income increases.

Question 13

If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price.
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Accepted Answer

If the price elasticity of demand coefficient is greater than 1, it means that demand is highly responsive to changes in price. Therefore, if the price is increased, the quantity demanded will decrease by a greater percentage, resulting in a decrease in total revenue, not an increase. On the other hand, if the price elasticity of demand coefficient is less than 1, it means that demand is relatively inelastic, and an increase in price will result in a smaller decrease in quantity demanded, leading to an increase in total revenue.

Question 14

Goods with few available substitutes tend to have inelastic demand curves.
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Accepted Answer

When goods have few available substitutes, consumers have limited options to choose from, making them more willing to pay a higher price for the good. This results in a relatively unresponsive demand curve, which is known as an inelastic demand curve.

Question 15

What does the "price elasticity of demand" measure? What does a price elasticity of demand coefficient of 1.2 mean? Does the product have an elastic, unitary elastic or inelastic demand?

Accepted Answer

The answer of What does the "price elasticity of demand"...

Question 16

If the supply of a good is inelastic, a decrease in price must increase total revenue.
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Accepted Answer

If the supply of a good is inelastic, a decrease in price will result in a proportionately smaller increase in quantity demanded. As a result, the decrease in price will not offset the decrease in quantity sold, leading to a decrease in total revenue rather than an increase. Inelastic supply means that producers cannot increase supply easily or quickly in response to changes in price.

Question 17

If the income elasticity of demand for a good is positive, the good is a normal good.
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Accepted Answer

A positive income elasticity of demand means that as income increases, the quantity demanded of the good also increases. This is characteristic of normal goods, which are goods for which demand increases as income increases.

Question 18

Supply-demand analysis shows that a tax collected from sellers is always fully shifted to buyers.
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Accepted Answer

The extent to which a tax collected from sellers is shifted to buyers depends on the elasticity of demand and supply. If demand is relatively inelastic and the tax is small, then the burden of the tax may fall more on the buyer. In contrast, if demand is relatively elastic and the tax is large, then the burden of the tax may fall more on the seller. Therefore, the statement that a tax collected from sellers is always fully shifted to buyers is false.

Question 19

A horizontal demand curve is perfectly elastic. ​
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Accepted Answer

A horizontal demand curve means that consumers are willing to buy an infinite quantity of a good at a set price. Any increase in price would cause consumers to switch to a substitute good or stop purchasing the good altogether, resulting in a perfectly elastic demand curve.

Question 20

Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more inelastic), the larger the burden of a sales tax that is borne by the sellers. ​
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Accepted Answer

When the supply curve is steeper (more inelastic), it means that producers are not very responsive to changes in price. In this case, the burden of the sales tax will largely fall on the sellers since they are unable to shift the tax burden onto the buyers by raising prices. Therefore, the sellers will end up paying a larger proportion of the tax.

Quiz 5: Price Elasticity of Demand and Supply

The fewer the substitutes for a good the greater will be the value of the price elasticity of demand coefficient. ​ ​

If demand for a good is price elastic, it must also be income elastic. ​ ​

Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more elastic), the larger the burden of a sales tax that is borne by the sellers. ​ ​

Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it. ​

What happens to total revenue given a price increase and demand is inelastic? Why?

Suppose an economist found that total revenues increase for the bus system when fares were raised, the conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic.

In response to a price change for good Y, if the cross-elasticity of demand for good Y is negative, good X and good Y are substitutes. ​ ​

When the government imposes a tax, sellers raise their price by the full amount of the tax. ​ ​ ​

In response to a price change for good Y, if the cross-elasticity of demand for good Y is positive, good X and good Y are complements. ​ ​ ​ ​

For an inferior good, the income elasticity of demand is negative. ​

If a supply curve has a constant slope throughout its length, it must have a constant price elasticity throughout its length. ​ ​

If the income elasticity of demand for a good is negative, the good is an inferior good. ​ ​

If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price. ​

Goods with few available substitutes tend to have inelastic demand curves. ​ ​ ​ ​

What does the "price elasticity of demand" measure? What does a price elasticity of demand coefficient of 1.2 mean? Does the product have an elastic, unitary elastic or inelastic demand?

If the supply of a good is inelastic, a decrease in price must increase total revenue. ​

If the income elasticity of demand for a good is positive, the good is a normal good. ​

Supply-demand analysis shows that a tax collected from sellers is always fully shifted to buyers. ​ ​

A horizontal demand curve is perfectly elastic. ​ ​ ​

Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more inelastic), the larger the burden of a sales tax that is borne by the sellers. ​ ​ ​

The fewer the substitutes for a good the greater will be the value of the price elasticity of demand coefficient.

If demand for a good is price elastic, it must also be income elastic.

Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more elastic), the larger the burden of a sales tax that is borne by the sellers.

Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it.

In response to a price change for good Y, if the cross-elasticity of demand for good Y is negative, good X and good Y are substitutes.

When the government imposes a tax, sellers raise their price by the full amount of the tax.

In response to a price change for good Y, if the cross-elasticity of demand for good Y is positive, good X and good Y are complements.

For an inferior good, the income elasticity of demand is negative.

If a supply curve has a constant slope throughout its length, it must have a constant price elasticity throughout its length.

If the income elasticity of demand for a good is negative, the good is an inferior good.

If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price.

Goods with few available substitutes tend to have inelastic demand curves.

If the supply of a good is inelastic, a decrease in price must increase total revenue.

If the income elasticity of demand for a good is positive, the good is a normal good.

Supply-demand analysis shows that a tax collected from sellers is always fully shifted to buyers.

A horizontal demand curve is perfectly elastic.

Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more inelastic), the larger the burden of a sales tax that is borne by the sellers.