Exam 5: Elasticity and Its Application

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Use the graphs below to answer the following questions. a.Determine equilibrium price and quantity for each graph. b.Given demand and supply, what would total revenue be for each graph? c.Assume that supply shifts to the left on both graphs by 100, raising price.Given the new equilibrium price and equilibrium quantity, what would total revenue be for each graph? d.What do your answers to part c tell you about the relationship between elasticity of demand and total revenue?

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Question 1

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a.The equilibrium price would be $60 and the equilibrium quantity would be 350.b.Total revenue for both graphs would be $21 000 ($60 × 350).c.On graph A, equilibrium price is now $72 and equilibrium quantity is 325.Total revenue for graph A would now be $23 400.On graph B, equilibrium price is now $65 and equilibrium quantity is now 300.Total revenue for graph B would now be $19 500.(See the graphs for this answer.)
d.The answer to C shows the expected outcome.Since the demand curve in graph A is inelastic, we would expect that when price increased, total revenue would increase (from $21 000 to $23 400).On graph B, since the demand is elastic, we would expect an increase in price to lower total revenue (from $21 000 to $19 500).

The main reason for using the midpoint method is that it:

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Question 2

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Food and clothing tend to have:

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Question 3

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The price of a hamburger increases by 25 per cent and the quantity of hamburgers demanded per week falls by 50 per cent.The price elasticity of demand is two.

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Question 4

A vertical supply curve signifies that:

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Question 5

If the quantity supplied responds only slightly to changes in price, then:

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Question 6

Suppose a coffee plantation in Colombia increases the quantity of coffee beans it supplies by 5% when it learns that the price of a coffee at cafes in Melbourne has risen by 25%.The Colombian producer's price elasticity of supply of coffee beans is 0.2.

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Question 7

If the measured elasticity is less than one it means that the demand for this good is inelastic.

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Question 8

Income elasticity of demand measures how:

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Question 9

The cross-price elasticity of demand will be positive for complement goods and negative for substitute goods.

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Question 10

If the price elasticity of demand is 1.5, a price decrease will cause total revenue to increase.

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Question 11

Suppose the price of product X is increased from $8.00 to $10.00 and as a result, the quantity of X demanded decreases from 1500 to 1000.Using the midpoint method, the price elasticity of demand for X in the given price range is:

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Question 12

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

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Question 13

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

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Question 14

If for a given price, the supply curve becomes flatter, the elasticity of supply at this point will:

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Question 15

The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price.If the owner is only interested in increasing revenue, he should:

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Question 16

Cross-price elasticity of demand is calculated as:

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Question 17

Sketch three demand curves.Curve A should be perfectly elastic, curve B should be perfectly inelastic and curve C should be unit elastic.

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Question 18

If a change in the price of a good results in no change in total revenue:

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Question 19

Graph 5-1 -In Graph 5-1, the section of the demand curve labelled C represents the:

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Question 20

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Exam 5: Elasticity and Its Application

The main reason for using the midpoint method is that it:

Food and clothing tend to have:

The price of a hamburger increases by 25 per cent and the quantity of hamburgers demanded per week falls by 50 per cent.The price elasticity of demand is two.

A vertical supply curve signifies that:

If the quantity supplied responds only slightly to changes in price, then:

Suppose a coffee plantation in Colombia increases the quantity of coffee beans it supplies by 5% when it learns that the price of a coffee at cafes in Melbourne has risen by 25%.The Colombian producer's price elasticity of supply of coffee beans is 0.2.

If the measured elasticity is less than one it means that the demand for this good is inelastic.

Income elasticity of demand measures how:

The cross-price elasticity of demand will be positive for complement goods and negative for substitute goods.

If the price elasticity of demand is 1.5, a price decrease will cause total revenue to increase.

Suppose the price of product X is increased from $8.00 to $10.00 and as a result, the quantity of X demanded decreases from 1500 to 1000.Using the midpoint method, the price elasticity of demand for X in the given price range is:

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

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

If for a given price, the supply curve becomes flatter, the elasticity of supply at this point will:

The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price.If the owner is only interested in increasing revenue, he should:

Cross-price elasticity of demand is calculated as:

Sketch three demand curves.Curve A should be perfectly elastic, curve B should be perfectly inelastic and curve C should be unit elastic.

If a change in the price of a good results in no change in total revenue:

Graph 5-1 -In Graph 5-1, the section of the demand curve labelled C represents the:

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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