Exam 5: Elasticity and Its Application

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Good X and Good Y are related as

If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase is about

The price elasticity of supply measures how responsive

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

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

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

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic?

Which of the following expressions is valid for the price elasticity of demand?

For which pairs of goods is the cross-price elasticity most likely to be negative?

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

The smaller the price elasticity of demand, the

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price inelastic demand?

Demand is said to have unit elasticity if the price elasticity of demand is

For which of the following goods would demand be most price elastic: a car, a sedan, a Honda sedan, a Honda Accord, a black Honda Accord?

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

When demand is perfectly inelastic, the demand curve will be

When demand is inelastic, an increase in price will cause