Exam 6: Demand and Elasticity

The definition of cross elasticity of demand for two products X and Y is

The sales manager of a retail outlet suggests that the best way to increase customers is to have a sale.If a 10 percent price cut doesn't bring in enough customers, then he'll cut prices 20 percent.Increased cash flow should take care of profits.Do you agree? Explain.

A study of New York City (NYC) tax rates concluded that taxes on the nonmanufacturing sector should be higher since that sector has fewer alternatives.Manufacturers are more mobile and may move to avoid higher taxes.This means that

When the goods of competing companies are identical, consumers have no reason to prefer one product over the other so the demand curve for each manufacturer will be perfectly elastic.

A horizontal demand curve is perfectly elastic because a change in price will not induce a change in quantity demanded.

Define the following terms and explain their importance to the study of economics. A)price elasticity B)complements C)substitutes D)cross elasticity E)supply elasticity

A demand curve with unit elasticity can never touch either the vertical or horizontal axes.

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

What is the shape of a perfectly elastic demand curve? Explain its significance for a seller.

Buyers' expenditures and sellers' revenues are always identical.

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami.The elasticity of demand for rice is

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?

​If demand for a seller's product is elastic, a price increase will decrease total revenue.

Demand curves often do not remain stationary; they shift because of changes in other variables.

How can one tell from cross elasticity what kind of relationship exists between any two goods?

If demand is unit elastic, then a 10 percent increase in price will lead to a 10 percent drop in quantity demanded.

What are the main determinants of demand elasticity? Explain their importance.

A tax on cigarettes can be expected to reduce teen smoking more than it reduces adult smoking.

When the price of penicillin tablets increases by $5 per dozen, the drug company's revenue increases by $6 million.Its elasticity of demand (in absolute terms) must be

If an increase in quantity demanded of a product reduces the quantity demanded of another, then the two goods are said to be substitutes.