Exam 5: Elasticity

FIGURE 5-1 -Refer to Figure 5-1. What graph best illustrates a relatively inelastic (but NOT perfectly inelastic) demand curve?

What is the direction of a perfectly inelastic supply curve?

What does the price elasticity of demand measure?

The widespread availability of email has likely decreased the price elasticity of demand for the services of the Canada Post.

If the supply curve for a product is vertical, then what is the elasticity of supply?

FIGURE 5-2 -Refer to Figure 5-2. With reference to Graph A, at a price of $10, what is total revenue equal to?

If the supply curve is perfectly elastic, what effect will an increase in demand have?

If the price elasticity of demand coefficient for gourmet coffee is estimated to be 1.6, what would a 5 percent increase in price likely lead to?

When is price elasticity of demand said to be greater?

Suppose that Joan plays golf five times per month when the price is $40 and four times per month when the price is $50. What is the price elasticity of Joan's demand curve?

As we move down along a straight-line demand curve, demand becomes increasingly price elastic.

Demand is inelastic when the percentage change in the quantity demanded exceeds the percentage change in the price of a good.

You have been hired by the city to determine whether or not an increase in the price of tickets for the mass transit system would raise system revenues. The debate has been heated and the city council seems to be divided. One side argues that in order to increase revenues from the transit system, prices must be increased. The opposing side argues that a price increase at this time will lower revenues. What assumptions are each side making about the price elasticity of demand, and how might you determine the best course of action?

A news report stated that movie attendance was up in the first quarter of 2009 due to the recession. Which of the following might explain this?

A 5 percent increase in the price of pizza causes a 5 percent drop in the quantity of both pizza and beer sold. From this we can tell that the demand for both pizza and beer are unit elastic.

The Shoe Emporium reduces the price of its shoes by 50 percent and finds that the quantity demanded for its shoes more than doubles. What term accurately describes the demand for shoes from The Shoe Emporium?

A tax is imposed on orange juice. Under what circumstances will consumers bear the burden from this tax?

The cross-price elasticity between soda and salty chips is -3. From this we can tell that the demand for salty chips is elastic.

An increase in price will cause a firm's total revenue to increase if demand is price elastic.

A 10 percent increase in income leads to a 15 percent decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. What can we conclude from this information?