Exam 5: Elasticity and Its Application

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat. Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

Scenario 5-3 ​ Suppose the demand function for good X is given by: $Q _ { d x } = 15 - 0.5 P _ { x } - 0.8 P _ { y }$ where $Q _ { d x }$ is the quantity demanded of good X, $P _ { x }$ is the price of good X, and $P _ { y }$ is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is $10 and the price of good Y increases from $8 to $10, the cross price elasticity of demand is about

The demand for grape-flavored Hubba Bubba bubble gum is likely

If the income elasticity of demand for a good is 0.56, is the good a normal or inferior good?

Figure 5-5 -Refer to Figure 5-5. Using the midpoint method, the price elasticity of demand between point X and point Y is

Table 5-5 ​ ​ Price Quantity Demanded \ 0 50 \ 2 40 \ 4 30 \ 6 20 48 10 -Refer to Table 5-5. Using the midpoint method, what is the price elasticity of demand between $2 and $4?

In general, demand curves for luxuries tend to be price elastic.

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

Suppose a market has the demand function Q^d=20-0.5P. Using the midpoint method, what is the price elasticity of demand between $30 and $40?

If a 9 percent increase in price for a good results in an 8 percent decrease in quantity demanded, the price elasticity of demand is

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

Suppose the price elasticity of demand for good A is 1.25. If the price of good A increases by 20%, what will be the resulting percentage change in quantity demanded for good A?

Suppose a market has the demand function Q^d=20-0.5P. At what price will total revenue be maximized?

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

What is the price elasticity of demand at any point on a perfectly inelastic demand curve?

Figure 5-2 ​ -Refer to Figure 5-2. The section of the demand curve at point B represents the

If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.