Download Demand Shifts in the Demand Curve

Economic Survey
Mr. Rubin de Celis
Chapter 4 vocabulary review
Demand
Understanding Demand
Click the button next to the response that best answers the question.
1. What is the income effect?
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the desire to own something and the ability to pay for it
a graphic representation of a demand schedule
when consumers react to an increase in a goods price by consuming less of that good and
more of other goods
the change in consumption resulting from a change in real income
2. What is the law of demand?
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consumers buy more of a good when its price decreases and less when its price increase
the desire to own something and the ability to pay for it
a table that lists the quantity of a good a person will buy at each different price
a table that lists the quantity of a good all consumers in a market will buy at each different
price
3. As the price of a slice of pizza increases, what happens to the quantity demanded?
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It increases.
It decreases.
It remains the same.
There isn't enough information in the table to answer the question.
4. What is a demand curve?
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consumers buying more of a good when its price decreases and less when its price increases
a graphic representation of a demand schedule
a table that lists the quantity of a good a person will buy at each different price
a table that lists the quantity of a good all consumers in a market will buy at each different
price
5. What is a market demand schedule?
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the desire to own something and the ability to pay for it
a graphic representation of a demand schedule
a table that lists the quantity of a good a person will buy at each different price
a table that lists the quantity of a good all consumers in a market will buy at each different
price
6. How many slices of pizza will the pizzeria owner sell at $2.00 a slice?
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250
200
150
100
7. Which of the following would NOT cause the demand curve for Latina magazine to shift?
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The Hispanic American population grows at four times the national average.
The articles are now written in both English and Spanish.
Hispanic American women become more willing than other ethnic groups to buy magazines.
The price of the magazine has been reduced and is now less expensive than other magazines
marketed to women.
8. The law of demand results from which two patterns of behavior?
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demand graph and demand curve
substitution effect and income effect
demand schedule and income schedule
all of the above
9. What does a market demand curve predict?
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what the future price of a good will be
how much sellers can lower their prices and still earn a profit
how much of a good people will buy when the price of a good rises or falls
what sellers will do to increase demand for a good
10. What is demand?
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consumers buy more of a good when its price decreases and less when its price increases
the desire to own something and the ability to pay for it
a graphic representation of a demand schedule
a table that lists the quantity of a good all consumers in a market will buy at each different
price
Demand
Shifts in the Demand Curve
1. The shift to the right in a demand curve means a(n)
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decrease in demand.
increase in demand.
decrease in income.
increase in substitution.
2. Ceteris paribus is
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a phrase that means "all other things held constant."
a graphic representation of a demand schedule.
a phrase that means the change in consumption resulting from a change in real income.
the desire to own something and the ability to pay for it.
3. Normal goods are
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goods that consumers demand less of when their incomes increase.
goods that consumers demand more of when their incomes increase.
two goods that are bought and used together.
goods used in place of one another.
4. Why might a rise in price of electric razors result in an increase in demand for non-electric razors?
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because people might decide to shift to non-electric razors to save money.
because non-electric razors are more plentiful than electric razors
because electric razors are normal goods and non-electric razors are inferior goods
because non-electric razors work better than electric razors
5. Complements are
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goods that consumers demand less of when their incomes increase.
goods, such as medicines, that consumers must buy no matter how much they cost.
two goods that are bought and used together.
goods used in place of one another.
6. Substitutes are
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goods that consumers demand less of when their incomes increase.
goods that consumers demand no matter what the cost.
two goods that are bought and used together.
goods used in place of one another.
7. A demand curve is an accurate tool for predicting the decisions of consumers as long as
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there are no changes other than price that could affect consumers.
there are no changes other than income that could affect consumers.
price and all other factors remain the same.
none of the above
8. Inferior goods are
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goods that consumers demand less of when their incomes increase.
goods that consumers demand more of when their incomes increase.
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two goods that are bought and used together.
goods used in place of one another.
9. If a consumer is waiting to buy a sweater he or she found at a department store until after the holiday
season, which factor is MOST LIKELY influencing the decision to wait?
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income
population
consumer expectations
advertising
10. Which of the following goods are complements?
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milk and cream
contact lenses and glasses
canoe and paddles
coffee and tea
Demand
Elasticity of Demand
1. After a producer determines that the demand for one of its products is inelastic, why would this firm
probably raise the price of this product?
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The firm's total revenues would probably increase.
Consumer demand would probably increase.
The firm's costs of production would probably decrease.
Competition would decrease.
2. The term "elastic"
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describes demand that is not very sensitive to a change in price.
describes demand that is very sensitive to a change in price.
describes demand whose elasticity is exactly equal to 1.
refers to how consumers make substitutions.
3. What is elasticity of demand?
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demand that is not very sensitive to a change in price
demand that is very sensitive to a change in price
demand whose elasticity is exactly equal to 1
a measure of how consumers react to a change in price.
4. The term "unitary elastic"
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describes demand that is not very sensitive to a change in price.
describes demand that is very sensitive to a change in price.
describes demand whose elasticity is exactly equal to 1.
refers to how consumers make substitutions.
5. The total amount of money a firm receives by selling goods or services is
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total profit.
total revenue.
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total cost.
ceteris paribus.
6. Which of the following is most likely to happen when the price of a good with elastic demand is
raised by 10 percent?
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The quantity sold will increase by 10 percent.
The quantity sold will decrease by 10 percent.
The quantity sold will decrease by 5 percent.
The quantity sold will decrease by 15 percent.
7. If elasticity of demand is exactly 1, what does an increase in price of a good mean?
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The percentage change in quantity demanded equals the percentage change in price.
Customers are very sensitive to changes in price.
There are few or no good substitutes available.
The quantity demanded will remain the same regardless of the increase in price.
8. Why do consumers sometimes take a while to respond to price changes?
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Price changes do not affect consumers.
They need time to decide whether the good is a luxury or a necessity.
They cannot find acceptable substitutes immediately.
Demand sometimes becomes less elastic over time.
9. The term "inelastic"
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describes demand that is not very sensitive to a change in price.
describes demand that is very sensitive to a change in price.
describes demand whose elasticity is exactly equal to 1.
refers to how consumers make substitutions.
10. Which of the following is NOT a factor in determining the elasticity of demand for a good?
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the consumer's perception of the good as necessity or luxury
the importance of the good to the consumer
an increase in population
how many substitute goods are available
Use a graph to answer this question. The pork industry has been working to promote pork as "the other
white meat". As a result, even health conscious consumers are consuming more pork. Indicate how the
demand curve for pork reflects this increase in consumer preferences.
Display Correct Answer
Use a graph to answer this question. Restaurant meals at Brian's Steakhouse are substitutes for
restaurant meals at the Virginia Steakhouse. If the price of meals at Brian's goes up, show the impact
on the demand curve for meals at the Virginia Steakhouse.
Display Correct Answer
Use a graph to answer this question. With all of the advances being made with the "smart road"
technology, New River Valley residents expect that high-tech cars (with lots of extras) will soon be
available at very reasonable prices. How does this expectation affect current demand for cars in the
New River Valley?
Display Correct Answer
Greg enjoys North Carolina style bar-b-que. The per pound price last year at Nags Head was $8, and
Greg bought a pound to bring home after vacation. This year, the price had declined to the $6 per
pound and he bought two pounds to bring home. What is Greg's elasticity of demand for bar-b-que?
Is Greg's elasticity of demand for bar-b-que elastic, inelastic, or unitary elastic?
When Greg's income increases, he buys more bar-b-que. Is bar-b-que a normal or inferior good?
Does Greg's income elasticity of demand have a positive or a negative sign?
Practice problems
Problem : Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes.
Today, the price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand
for envelopes elastic or inelastic? What is Julie's elasticity of demand?
Problem : If Neil's elasticity of demand for hot dogs is constantly 0.9, and he buys 4 hot dogs when the
price is $1.50 per hot dog, how many will he buy when the price is $1.00 per hot dog?
Problem : Which of the following goods are likely to have elastic demand, and which are likely to
have inelastic demand?
Home heating oil
Pepsi
Chocolate
Water
Heart medication
Oriental rugs
Problem : Katherine advertises to sell cookies for $4 a dozen. She sells 50 dozen, and decides that she
can charge more. She raises the price to $6 a dozen and sells 40 dozen. What is the elasticity of
demand? Assuming that the elasticity of demand is constant, how many would she sell if the price were
$10 a box?
1.The price elasticity of demand is:
a) the ratio of the percentage change in quantity demanded to the percentage change in price.
b) the responsiveness of revenue to a change in quantity.
c) the ratio of the change in quantity demanded divided by the change in price.
d) the response of revenue to a change in price.
2.If demand is price elastic, then:
a) a rise in price will raise total revenue.
b) a fall in price will raise total revenue.
c) a fall in price will lower the quantity demanded.
d) a rise in price won't have any effect on total revenues.
3. Complementary goods have:
a) the same elasticities of demand.
b) very low price elasticities of demand.
c) negative cross price elasticities of demand with respect to each other.
d) positive income elasticities of demand.
4. The price elasticity of demand generally tends to be:
a) smaller in the long run than in the short run.
b) smaller in the short run than in the long run.
c) larger in the short run than in the long run.
d) unrelated to the length of time.
5. If the price elasticity of supply of doodads is 0.60 and the price increases by 3 percent,
then the quantity supplied of doodads will rise by
a) 0.60 percent.
b) 0.20 percent
c) 1.8 percent
d) 18 percent.
6. Suppose we know that the price elasticity of demand of good X is equal to -1.2. Then, if
its price will increase by 5%, we can predict with certainty that
a) quantity demanded of that good will increase.
b) the revenue of the firm producing that good will increase by 6%.
c) the revenue of the firm producing that good will decrease by 6%.
d) the quantity demanded of that good will decrease by 6%.
e) None of the above.
7. A 10% increase in the price of movie ticket in Westridge 8 leads to a 15% decrease in the
number of tickets sold, indicating the demand for movie ticket in Westridge 8 is:
a) elastic.
b) inelastic.
c) unit elastic.
d) Can not tell from the information given.
8. If the cross-price elasticity between two commodities is 1.5,
a) the two goods are luxury goods.
b) the two goods are complements.
c) the two goods are substitutes.
d) the two goods are normal goods.
Practice Problems for Elasticity
Solution for Problem 1 >>
To find Julie's elasticity of demand, we need to divide the percent change in quantity by the percent
change in price.
% Change in Quantity = (8 - 10)/(10) = -0.20 = -20%
% Change in Price = (3.75 - 3.00)/(3.00) = 0.25 = 25%
Elasticity = |(-20%)/(25%)| = |-0.8| = 0.8
Her elasticity of demand is the absolute value of -0.8, or 0.8. Julie's elasticity of demand is inelastic,
since it is less than 1.
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Solution for Problem 2 >>
This time, we are using elasticity to find quantity, instead of the other way around. We will use the
same formula, plug in what we know, and solve from there.
Elasticity =
And, in the case of John, %Change in Quantity = (X – 4)/4
Therefore :
Elasticity = 0.9 = |((X – 4)/4)/(% Change in Price)|
% Change in Price = (1.00 - 1.50)/(1.50) = -33%
0.9 = |(X – 4)/4)/(-33%)|
|((X - 4)/4)| = 0.3
0.3 = (X - 4)/4
X = 5.2
Since Neil probably can't buy fractions of hot dogs, it looks like he will buy 5 hot dogs when the price
drops to $1.00 per hot dog.
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Solution for Problem 3 >>
Elastic demand: Pepsi, chocolate, and Oriental rugs
Inelastic demand: Home heating oil, water, and heart medication
Close
Problem : If supply is unit elastic and demand is inelastic, a shift in which curve would affect quantity
more? Price more?
Solution for Problem 4 >>
Shifting the demand curve would affect quantity more, and shifting the supply curve would affect price
more.
Close
Solution for Problem 5 >>
To find the elasticity of demand, we need to divide the percent change in quantity by the percent
change in price.
% Change in Quantity = (40 - 50)/(50) = -0.20 = -20%
% Change in Price = (6.00 - 4.00)/(4.00) = 0.50 = 50%
Elasticity = |(-20%)/(50%)| = |-0.4| = 0.4
The elasticity of demand is 0.4 (elastic).
To find the quantity when the price is $10 a box, we use the same formula:
Elasticity = 0.4 = |(% Change in Quantity)/(% Change in Price)|
% Change in Price = (10.00 - 4.00)/(4.00) = 1.5 = 150%
Remember that before taking the absolute value, elasticity was -0.4, so use -0.4 to calculate the changes
in quantity, or you will end up with a big increase in consumption, instead of a decrease!
-0.4 = |(% Change in Quantity)/(150%)|
|(%Change in Quantity)| = -60% = -0.6
-0.6 = (X - 50)/50
X = 20
The new demand at $10 a dozen will be 20 dozen cookies.
Close