Exam 6: Demand and Elasticity

In a past fare war, U.S. Air reduced the price of its Charlotte, North Carolina, to New York City round-trip fare from $198 to $138 to match American Airlines. U.S. Air did so reluctantly, saying it would cost the company millions of dollars in revenue. American, on the other hand, believed the fare cut would increase its revenue. What different assumptions about the underlying price elasticity of demand did each airline believe true?

The demand for a new effective drug for the cure of AIDS would most likely be

Figure 6-3 -In Figure 6-3(a), demand is

A line that is perfectly elastic has an elasticity of demand of zero.

Along a perfectly elastic demand curve,

A demand curve with an elasticity of 1.0 is a unit-elastic demand curve.

If demand is inelastic, a drop in price will raise total expenditure.

A positive value for the cross elasticity of demand between two good implies that these two goods are substitutes.

Figure 6-5 -In Figure 6-5, if price falls from point A to point B along the unit-elastic demand curve,

Knowing the value of the cross elasticity of demand allows us to distinguish between inferior goods and normal goods.

Which of the following will lead to a movement along the same demand curve?

The demand for Exxon gasoline is ____ the demand for all gasoline.

Big Al's Burger Emporium lowered the price of its burgers from $8 to $6. The firm saw sales of burger increase from 1,200 per week to 2,000 per week. This implies that the price elasticity (dropping any negative signs)is

Along the inelastic portion of a demand curve, the

Elasticity is a measure of the responsiveness of change in quantity demanded to a change in price.

A price cut will decrease the revenue a firm receives if the demand for its product is

Total expenditure by a buyer is equal to the

The value of the price elasticity of demand for a straight-line demand curve starts with low elasticity values at high prices and has high elasticity values at low prices.

If the income of buyers increases and a company maintains the same price, what is the most likely impact on quantity sold? Explain. Draw a graphical display of the result.

Figure 6-3 -Using Figure 6-3(b), as price falls from $15 to $6, the elasticity of demand is (dropping all minus signs)