Exam 4: Subtleties of the Supply and Demand Model

The price elasticity of supply is a unit-free measure and uses percentage changes in quantity supplied and price to measure how sensitive supply is to a change in price.

For a given shift in demand, the more elastic is supply, the

The midpoint formula for calculating price elasticity of demand gives the same answer, regardless of the direction of the price change.

If the price elasticity of demand is 5.3, demand is said to be

Suppose that, as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. Using the midpoint formula, the price elasticity of demand for wheat is 1.8.

When the demand curve is a vertical line, demand is

The concept of price elasticity of demand makes it possible to

Last year, Keith purchased 20 pounds of chicken when his income was $40,000. This year his income is $50,000 and he purchased 30 pounds of chicken. Which of the following statements is true?

Exhibit 4-2 -In Exhibit 3-4, which of the following demand curve has the highest price elasticity of demand?

The government can issue ration coupons to deal with problems resulting from a price floor.

Explain why a 10 percent tax would be more destructive in an industry where the demand for the product is highly price elastic as opposed to another industry where product demand is price inelastic.

To say that gasoline has a low price elasticity of demand is to say the quantity demanded of gasoline

A unit elastic supply curve is vertical.

Suppose there is a sudden decrease in the supply of oranges. Compare the effect of the change in orange supply on the price of oranges in a market with high demand elasticity and a market with low demand elasticity.

If some product has an elastic demand, then we can expect

Given the following income elasticities of demand, would you classify the good as a luxury, necessity, or inferior good?

If a household increases its consumption of a good by 10 percent when its income increases by 1 percent, then the good is

When a given percentage change in the price leads to a larger percentage change in the quantity supplied, supply is said to be

A manager wishes to increase revenues. One suggestion is to cut prices; another is to raise prices. What are the assumptions each suggestion is based on?

Does a price ceiling result in a shortage or a surplus? Why?