Exam 5: Elasticity

In a recent fare war, WestJet reduced the price of its one-way airfare from Vancouver to Winnipeg from $198 to $138 to match Air Canada. WestJet matched the fare reluctantly, saying it would cost the company millions of dollars in revenue for those tickets to be sold for less. Air Canada, on the other hand, believed the fare cut would increase its revenue even if rival airlines matched the lower fares. What different assumptions about the underlying price elasticity of demand for airline tickets on that route did each airline believe True?

FIGURE 5-3 -Refer to Figure 5-3. How would price elasticity of demand along a linear demand curve be described?

Among the following pairs, which is likely to have the greatest price elasticity of demand? Why? a.cars or Toyotas b.electricity usage during a month or during a year c.cable television or an apartment rental

If the measured elasticity of supply coefficient equals 0.6, then what term accurately describes supply?

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

Apples and oranges are substitute goods. The cross-price elasticity of apples with respect to the price of oranges is positive.

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

Most passenger trains operate far below full capacity. Under what circumstances would reducing travel fares be likely to increase total revenue?

Which of the following best describes the relationship between the elasticity of demand and the availability of substitutes?

The demand for a normal good is downward sloping and the income elasticity is negative.

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. What can we conclude from this information?

What term accurately describes demand when the quantity demanded is very responsive to changes in price?

Bailey's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?

A 10 percent decrease in the price of energy bars leads to a 20 percent increase in the quantity of energy bars demanded. What can we conclude from this information?

As you move down (southeast) along a demand curve, what happens to the elasticity?

The government proposes a tax on flowers in order to boost its revenue. Under what circumstances will consumers bear all of this tax?

FIGURE 5-2 -Refer to Figure 5-2. Compared to Graph A, what type of demand curve does Graph B represent?

A decrease in price will cause a firm's total revenue to decrease if demand is price inelastic.

A perfectly inelastic supply curve is vertical.

A tax is imposed on wine. Under what circumstances will sellers bear the burden from this tax?