Exam 6: Elasticity: the Responsiveness of Demand and Supply

Table 6.1 Price per Pound (dollars) Quantity of Cheese Demanded (pounds) \ 16 3 14 4 12 5 10 6 8 7 6 8 4 9 2 10 -Refer to Table 6.1.Over what range of prices is the demand elastic?

Firms estimate the price elasticity of demand for new products by conducting market experiments in which firms try different prices and observe the resulting change in quantity demanded.

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

Suppose the demand curve for a product is represented by a typical downward-sloping curve.Now suppose the demand for this product decreases.Which of the following statements accurately predicts the resulting decrease in price?

The value of the price elasticity of supply depends primarily on how quickly firms can acquire inputs to increase quantity supplied when price increases.

If demand is inelastic, the absolute value of the price elasticity of demand is

Suppose the supply curve for digital cameras shifts to the right.This will cause a relatively large decrease in the price of digital cameras if both demand and supply are inelastic.

List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.

Suppose that at a price of $55, 100 units were sold while at a price of $33, 153 units were sold.Without calculating the price elasticity value, can you determine whether demand is elastic, unit-elastic, or inelastic? Explain your answer.

Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.

Using cross-sectional data from the two Housing Assistance Supply Experiment (HASE)sites--Brown County, Wisconsin, and St.Joseph County, Indiana, John Mulford of Rand Research estimates that the long-run "permanent" income elasticity of housing expenditures to be 0.45 for owners.Using this information, what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites?

A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ can represent inelastic demand.

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

Economists estimated that the price elasticity of beer is -0.17 and the income elasticity of beer is -0.05.This means that

Figure 6.2 -Refer to Figure 6.2.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?

The demand for most farm products is relatively inelastic.All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in productivity?

Figure 6.1 -Refer to Figure 6.1.The demand curve on which elasticity changes at every point is given in

A demand curve that is horizontal indicates that the commodity

Jenna runs a small boutique in Capitola.She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more.On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers?

Suppose the price of gasoline in July 2004 averaged $0.91 per litre and 15 million gallons a day were sold.In October 2005, the price averaged $1.06 per litre and 14 million gallons were sold.If the demand for gasoline did not shift between these two months, use the midpoint formula to calculate the price elasticity of demand.Indicate whether demand was elastic or inelastic.