Exam 5: Elasticity and Its Application

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.

For a particular good, an 8 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The difference between slope and elasticity is that slope

If the price elasticity of supply is zero, then

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

Suppose that 50 hot dogs are demanded at a particular price. If the price of hot dogs rises from that price by 5 percent, the number of hot dogs demanded falls to 48. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

Scenario 5-3 The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. -Refer to Scenario 5-3. The change in equilibrium price will be

A tax accounting firm produces 500 tax returns units when the market price is $150 per return and produces 700 tax returns when the market price is $170 per tax return. Using the midpoint method, for this range of prices, the price elasticity of supply is about

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

Figure 5-14 -Refer to Figure 5-14. Over which range is the supply curve in this figure the least elastic?

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

The smaller the price elasticity of demand, the

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a

The demand for a good becomes more inelastic

For a good that is a luxury, demand

Which of the following statements about agriculture in the U.S. is correct?

Demand is elastic if the price elasticity of demand is greater than 1.

Total revenue will be at its largest value on a linear demand curve at the

Elasticity is