Exam 5: Elasticity and Its Application

Alice says that she likes banana splits, but if the price changed, she would not buy them anymore. If this is the case:

Suppose that an increase in the price of jumping castles from $650 to $850 prompts party shops to increase the quantity of these jumping castles that they offer from 80 to 320. Using the midpoint method, what would be the elasticity of supply?

If the demand curve is linear and downward-sloping, which of the following would NOT be correct?

Suppose the government increases the tax on petrol in order to raise revenue. Since raising the petrol tax would increase the price of petrol, the government must be assuming that the:

The demand for a good is said to be elastic if a small price decrease leads to a substantial increase in the quantity demanded.

Suppose that 50 candy bars are demanded at a particular price. Using the midpoint method, if the price of candy bars rises by four per cent, the number of candy bars demanded falls to 48 candy bars. This means that the:

Coffee and tea are likely to have:

The price elasticity of demand for toasted muesli would increase if:

A vertical supply curve signifies that:

The Conservation Reserve Program pays farmers to take out of production highly erodible land. How will this program affect farm income and the wellbeing of consumers?

If an increase in income results in a decrease in the quantity demanded of a good, then the good is:

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

Using the midpoint method, compute the elasticity of demand between points A and B. Is 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 this portion of the curve elastic or inelastic?

In the 1970s OPEC generated high prices for oil but could not sustain this in the mid-80s and 90s. The reason was that both the supply and demand elasticity for oil is less elastic in the short run than in the long run.

What is the price elasticity of supply?

If the quantity supplied of a good responds strongly to a change in the price of an input:

If the price of forest-products rises, the price elasticity of supply will be more responsive in the long run than in the short run.

If a good is a necessity, demand for the good would tend to be:

In the long run, the quantity supplied of most goods:

In general, a firm will be able to generate the greatest response to a price increase: