Exam 5: Elasticity and Its Application

If law enforcement agencies prohibit the use of drugs such as heroin, cocaine and crack and the demand for drugs is inelastic, it is possible that:

The cross-price elasticity of demand measures how the quantity demanded of a good changes:

What is elasticity and why do economists use the concept?

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:

An inferior good is one that has:

The midpoint method will often give you two different values of elasticity depending on whether you calculate the elasticity from point A to point B or point B to point A.

If you think good wine is a necessity but cheese is a luxury, then your demand for wine will be more ______ than your demand for cheese:

In the case of a downward linear demand curve, total revenue is always maximised at

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.

Demand is classed as inelastic if the elasticity coefficient is:

Given a linear demand curve has a constant slope, it follows that the elasticity of the linear demand curve is also always constant.

When Anna was studying at university, she had a monthly income of $900 and bought 4 items of second-hand clothing.Now, she is working full-time with a monthly income of $3000.She now buys 20 items of second-hand clothing a month.Compute Anna's income elasticity of demand using the midpoint method.What type of goods are second-hand clothes for Anna?

Economists compute the price elasticity of demand as the:

Major Australian supermarket chains have been fighting to sell milk at the lowest price.The fact that they place such importance on the price must mean that they consider demand for milk to be somewhat price inelastic.

Graph 5-5 -In Graph 5-5, which supply curve is perfectly inelastic?

Normal goods have positive income elasticities of demand, while inferior goods have negative income elasticities of demand.

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

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

The demand for a good tends to be more elastic:

Suppose the price of product X is reduced from $16.00 to $12.00 and, as a result, the quantity of X demanded increases from 300 to 450.Using the midpoint method, the price elasticity of demand for X in the given price range is: