Exam 6: Elasticity: the Responsiveness of Demand and Supply

Figure 6-12 -Refer to Figure 6-12. Suppose the diagram shows the supply curves for a product in the short run and in the long run. Which supply curve represents supply in the short run and which curve represents supply in the long run?

The market demand for The Federalist Papers is likely to be more elastic than the market demand for a best-selling mystery novel.

Table 6-4 The publisher of a magazine gives his staff the following information: He tells the staff, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue being exactly equal to our cost." -Refer to Table 6-4. Which of the following statements is correct?

Figure 6-12 -Refer to Figure 6-12. The diagram shows two supply curves, S_A and S_B. As price rises from P₀ to P₁, which supply curve is more elastic?

The cross-price elasticity of demand measures the

When there few close substitutes available for a good, demand tends to be

Figure 6-5 -Refer to Figure 6-5. The section of the demand curve labeled "A" represents

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent, and the sale of dips (like salsa and bean dip) fell 8 percent. This set of facts indicates that the cross-price elasticity between tortilla chips and dips is ________, so the two are ________.

The Mass Rapid Transit (MRT) System in Hong Kong has been running significant losses. Transport Ministry officials have argued over whether to raise fares to combat the losses. One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours. Suppose that the current fare is $4 and the government is considering raising it to $6. Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day. a. Using the midpoint formula, what is the estimated elasticity of demand for MRT rides? b. What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system if the fare increase happens? c. Last year, the MRT system incurred a loss of $50,000 per day. Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

Figure 6-6 -Refer to Figure 6-6. As price falls from P_A to P_B, the quantity demanded increases the most along D_1; therefore

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

Figure 6-10 -Refer to Figure 6-10. The supply curve on which price elasticity changes at every point is shown in

Suppose the value of the price elasticity of supply is 4. What does this mean?

The income elasticity of demand measures

If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price.

When Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?

Table 6-3 -Refer to Table 6-3. Over what range of prices is the demand inelastic?

Assume that you own a small boutique hotel. In an attempt to raise revenue, you reduce your rates by 20 percent. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range?