Exam 5: Elasticity: a Measure of Responsiveness

Suppose that local dry cleaner shop faces a demand curve that is liner and that the current price for its garments is set at a point where the price elasticity is 1.7.If the local dry cleaner shop increases the price per garment:

What does the price elasticity of supply measure?

What does it mean for a good to have a perfectly inelastic demand? Draw a demand curve of this type.Explain why it has the shape that it does.

Would you expect the income elasticity of demand for Cadillacs to be positive or negative? Why?

Which of the following is NOT likely to be an example of a product with an inelastic demand?

What does the cross elasticity of demand measure? How is it calculated?

Demand is elastic along the upper half of a liner demand curve,so an increase in quantity from a decrease in price decreases total revenue.

The price elasticity of demand for gasoline is 0.5 and the price elasticity of supply for gasoline is 1.1.If demand rises by 25%,the price of gasoline will:

If the price elasticity of supply is equal to zero,then supply is perfectly inelastic.

The price elasticity of supply is generally:

-Refer to Figure 5.5.Using the midpoint method,if the price of a gardenburger is increased from $8 to $10,the price elasticity of demand equals:

When the price of a pair of shoes is $80,10 pairs are demanded.When the price of the pair of shoes is $60,20 pairs are demanded.Using the initial value,the elasticity of demand is ________ starting at a price of $80 and ________ starting at a price of $60.

The price elasticity of demand for tomatoes,is 1.2 during the summer.If a drought causes the price of tomatoes to increase 15%,farmers can expect quantity demanded to:

When the price of bricks increases 5%,quantity demanded decreases 15%.The elasticity for bricks is:

Goods for which the price elasticity of demand is relatively inelastic:

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is decreased from $10 to $8,the price elasticity of demand equals:

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $2 to $4,the price elasticity of demand equals:

Would you expect the cross elasticity of demand between ham and turkey to be positive or negative? Why?

Recall the application about the short-run and long-run elasticity of supply of milk.If the price of milk increases by 20%,in the short run the quantity of milk supplied will increase by only 2% and in the long run it will increase by 50 %.Why is supply more price-elastic in the long run?

If the price elasticity of demand for pasta is 2 then a 10% increase in the price will result in a decrease in total revenue.