Economics: Supply and Demand and Cross Elasticity

Topics: Supply and demand, Price elasticity of demand, Elasticity Pages: 4 (987 words) Published: August 26, 2013

Reading: Chapter 4 of the textbook.


1.The price elasticity of demand is the percentage change in price divided by the percentage change in quantity demanded.
2.Demand is said to be inelastic when a reduction in price results in a decrease in total revenue.
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3.When the price of coffee increases 8%, quantity demanded decreases 5%. The elasticity of coffee must be inelastic. (PERCENTAGE OF PRICE IS GREATER THAN THE PERCENTAGE OF QUANTITY BY 1/1/2)
4.The more substitutes there are for the product the more price elastic the demand for the product is.
5.A vertical demand curve may be described as perfectly price inelastic.
6.If the elasticity coefficient of demand for coconuts is 0.40, then a 20% fall in price will result in an 8% fall in quantity demanded. (QUANTITY DEMANDED INCREASE BY 8%)
7. If the quantity demand of tea decreases by 2% when the price of coffee decreases by 8%, the cross elasticity of demand between tea and coffee is 0.25.
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8. If the cross elasticity of demand between fish and chicken is 2, then a 2% increase in the price of fish will result in a 4% decrease in the quantity of chicken demanded. (QUANTITY OF THE CHICKEN INCREASES CAUSE IT ACTS AS A SUBSTITUTE GOODS)

9.If bus travel is an inferior good, then its income elasticity of demand will be negative.
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10.When income changes, the quantity demanded for a commodity remains the same, the income elasticity of demand for the good is negative one.

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11.The cross elasticity of demand for product X with respect to the price of product Y is 1.00. It can be concluded that X and Y are complementary products.
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12.A positive income elasticity of demand coefficient indicates that a product is an inferior good.
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13.A vertical supply curve may be described as perfectly price inelastic.
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14.A supply curve that has a...
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