Exam 5: Elasticity and Its Applications

Supply tends to be ________ in local markets, and ________ in global markets.

If the price of music CDs increases by 10 percent and the quantity supplied increases by 20 percent, the elasticity of supply is equal to 2.0, perhaps indicating the ease of increased production at a relatively constant unit cost.

Marge tutors English students-if she raises rates, her revenues increase. Brad tutors biology students-if he lowers rates, his revenues increase. Which of the following is TRUE?

Because producing more oil requires a significant increase in exploration and drilling costs, the supply curve for oil is:

With certain goods, such as high quality Scotch whiskey, it is nearly impossible to increase output easily, suggesting a supply elasticity value greater than 1.

Reference: Ref 5-3 (Figure: Slave Redemption and Elasticity) Refer to the figure. How many new slaves are captured after the redemption program is installed?

Drug prohibition is likely to increase drug-industry revenue because the demand for drugs is inelastic.

When production of a good can be expanded without significantly increasing the overall demand for its inputs:

(Figure: iPod Consumers) A local electronics store sells iPods for $100 per unit. The manager who took a lesson from his economics course in college decides to offer a 20 percent discount to students who can present their current student ID at purchase. Given the demand curves for regular and student customers, answer the following questions. Figure: iPod Consumers a. What will be the total revenue for both groups of customers if the store offers the discount? b. For which group of customers is the demand more elastic? c. What is the elasticity of demand between the prices of $100 and $80 in the regular market? d. What is the elasticity of demand between the prices of $100 and $80 in the student market? e. If the manager increases the regular price of iPods to $120 and lowers the discount price to $70, how much could the store increase total revenues?

If the demand curve is inelastic then an increase in price would cause:

Reference: Ref 5-5 (Figure: Calculating Elasticities) Refer to the figure. The absolute value of the demand elasticity of the demand curve in the right panel is:

Gun buyback programs will be less effective if the:

An owner of an appliance store lowers the price of dishwashers from $400 to $350, which increases the number of dishwashers sold from 1,000 to 1,200. What is the elasticity of demand?

Which of the following would NOT make elasticity of demand for a good more elastic?

If the price of gasoline in this country were expected to rise due to a permanent increase in the tax on gasoline, which of the following would you expect to happen?

Which of the following factors causes a demand curve to become more elastic over time?

Which of the following is a reason why the demand curve for an item would be more elastic?

Why is the supply curve for oil rather inelastic?

(Figure: Supply Elasticity) Refer to the figure. Which one of the four supply curves has the greatest responsiveness to price changes?

Suppose that it is extremely inexpensive to acquire additional acres of land to grow bananas. We would then expect that the elasticity of supply of bananas is elastic.