Exam 5: Elasticity and Its Application

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

Which of the following is likely to have the most price elastic demand?

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

Figure 5-21 -Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $5 and $15?

Which of the following is likely to have the most price elastic demand?

With regard to elasticity, if a firm has a longer time to adjust to a price increase, supply will be more

Figure 5-11 -Refer to Figure 5-11. If price increases from $10 to $20, total revenue will

If the cross-price elasticity of demand between two goods is positive, what is the relationship between the two goods?

If the demand curve is linear and downward sloping, which of the following statements is not correct?

Table 5-12 -Refer to Table 5-12. Between which two quantities listed is demand most elastic?

Scenario 5-4 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-4. The change in equilibrium price will be

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

Figure 5-12 -Refer to Figure 5-12. Which of the following price changes would result in no change in sellers' total revenue?

The price elasticity of demand measures the

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Which of the following is likely to have the most price elastic demand?

When demand is inelastic, a decrease in price will cause

Scenario 5-6 Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000. -Refer to Scenario 5-6. Using the midpoint method, what is the cross price elasticity of demand for landline and mobile service?

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.