Exam 5: Elasticity and Its Application

Last year, Joan bought 50 kg of hamburger mince when the household income was $40 000.This year, the household income was only $30 000 and Joan bought 60 kg of hamburger mince.All else being constant, Joan's income elasticity of demand for hamburger is:

Graph 5-3 -In Graph 5-3, as price falls from P_A to P_B, which demand curve is least elastic?

Demand is said to be elastic if:

Demand is unit elastic if the elasticity is greater than one.

Suppose that there are many substitutes for crocodile-leather handbags.This would mean that the:

If the price of one good goes up, and this causes the quantity demanded of another good to go down, the cross-price elasticity of demand will be negative.

Suppose that after a five per cent increase in the price of timber, a forestry company increases its supply of timber by 10 per cent in the next three months, and 15 per cent by 12 months.This means that the elasticity of supply is _____.

The elasticity of demand for a good tends to increase if:

Define cross-price elasticity of demand.What does it measure? What does it mean if the cross-price elasticity is negative or positive?

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

If sellers respond substantially to changes in the price, then:

A perfectly vertical demand curve means that demand is perfectly inelastic.The price elasticity of demand will be zero.

Suppose the price elasticity of demand for wine is 1.60.A 12 per cent decrease in price will result in:

What factors contributed to the inability of OPEC to keep oil prices high? What determinants of elasticity played a key role?

Andy has discovered a new way to make clothes pegs more cheaply than his competitors.He believes that since he can now sell his clothes pegs at a lower price than other clothes-peg providers on the market, he will be able to increase his revenue by attracting more customers.He estimates the price elasticity of demand for clothes pegs to be 0.7.What will happen to his total revenue if he decreases the price of his clothes pegs? What should Andy do?

Why is the demand for luxury goods generally more elastic than for necessities?

If a supply curve is horizontal, it is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

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?

Goods tend to have more elastic demand over shorter time horizons.

Price elasticity of supply measures how much the quantity supplied responds to changes in demand.