Exam 6: Elasticity: the Responsiveness of Demand and Supply

When there are few substitutes available for a good, demand tends to be relatively inelastic.

Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: alcoholic beverages, beer and Molson Canadian.

Consider the following types of demand curves: a)a vertical demand curve b)a horizontal demand curve c)a linear downward-sloping demand curve Which of the demand curves listed exhibits a price elasticity of demand coefficient that remains constant along the demand curve?

The price of wheat has fallen since 1960.Which of the following explains this price decline?

The price elasticity of an upward-sloping supply curve is always

Suppose a frost destroys the alfalfa crop in Manitoba but farmers see an increase in their revenues.Which of the following best explains this?

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

Income elasticity measures

Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects.Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Source: Jonathan D.Glater and Alan Finder, "In New Twist on Tuition Game, Popularity Rises With the Price," New York Times, December 12, 2006 Based on the information above, the demand for Hendrix College education is

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week.When he raised her price to $12 per dozen, he still sold 40 dozen per week.Based on this information, the demand for his tamales is

Suppose the price elasticity of demand for cigarettes is -0.4.Health Canada decides to regulate tobacco production, which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent.What is the percentage increase in price which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4, what would be the percentage increase in price?

Suppose the demand for milk is relatively inelastic.What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?

In October 2012, the average price of gasoline in Canada was $1.31 per litre and consumers bought 2 percent less gasoline than they had during October 2010, when the average price was $1.25 per litre.Based on these numbers, what was the price elasticity of demand for gasoline from October 2010 to October 2012?

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

For each pair of items below determine which product would have the higher price elasticity of demand (in absolute value). a.Insulin for a diabetic or aspirin for someone suffering a headache. b.A new Whirlpool 27 cu.ft.side-by-side refrigerator or electricity to power your all-electric home. c.A can of Schweppes Ginger Ale or soft drinks in general.

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as it desires.If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor.What does this indicate about the supply curve for janitorial services?

The Mass Rapid Transit (MRT)System in Hong Kong has been running significant losses.Transport Ministry officials have argued over whether to raise fares to combat the losses.One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours.Suppose that the current fare is $4 and the government is considering raising it to $6.Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day. A)What is the estimated elasticity of demand for MRT rides? B)What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system? C)Last year, the MRT system incurred a loss of $50,000 per day.Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

Which of the following items is likely to have the highest income elasticity of demand?

The price elasticity of supply is calculated as the change in supply divided by the change in price.