Exam 5: Elasticity

The price elasticity of demand for gasoline is -0.8. What must occur to the price of gasoline in order for quantity demanded to rise by 20 percent?

How does one determine whether demand is elastic, inelastic, or unit elastic?

Compare and contrast the two demand curves depicted in the graph below.

Compare and contrast the relative elasticities that you are likely to find between toothpicks and furniture. Explain your answer.

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

Compare and contrast the relative price elasticities of Marlboro brand cigarettes with cigarettes in general. Why is there a difference?

Assume a customer of natural gas is negotiating with his supplier over the telephone. At the time prices of all the supplier's competitors are precisely the same. The customer tells the supplier that if he raises his price even one penny he will walk away. What does the perceived demand curve for natural gas look like for this customer? Why?

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

When the price of a Sony portable CD player rises from $125 to $150, quantity demanded falls from 750 per week to 600. Calculate total revenue both before and after the price change. What can we tell about the price elasticity of demand for Sony portable CD players?

When the price of toilet paper falls by 20 percent, the quantity of toilet paper demanded rises by 10 percent. Calculate the price elasticity of demand. Is the demand for toilet paper elastic, inelastic, or unit elastic?

The owner of a local restaurant comes to you for help. He needs to know whether or not he should increase the price of the meals he serves. To answer his question, what information would you like to know?

What is the likely price elasticity of demand for crabs? Why?

Billy's income elasticity of demand for ground beef is -0.5 and his income elasticity of demand for pork chops is 1.2. Is ground beef a normal or inferior good? Explain. What about pork chops?

Using the graph below explain why the elasticity of demand will be greater between $15 and $9 as opposed to between $9 and $4. Hint: You do not need to perform any calculations to prove that this is true.