Exam 3: Demand Elasticities

Which of the following statements is correct?

According to the text, the price elasticity of demand for bath tissue has been estimated to be -2.42.This implies that a 10 percent decrease in the price of bath tissue would cause the quantity demanded of bath tissue to:

Suppose the demand for meals at a medium-priced restaurant is elastic.If the management of the restaurant is considering raising prices, it can expect the total revenues the restaurant earns to:

When the government decides to impose a tax on sellers of a good or service, sellers try to pass the tax on to consumers by raising the price of the good being sold.Assume the government decides to place a $1 tax on each unit of a good sold, e.g., tires.Using the simple model of supply and demand, illustrate what would happen to the price and quantity of tires sold.Would the amount of tax paid by the consumer (as opposed to the producer)be greater when demand is elastic or inelastic? Why?

If the percentage change in quantity demanded is greater than the percentage change in price, we would say that over this range, demand is:

When calculating the price elasticity of demand, which of the following conditions must be satisfied?

Assume a consumer is currently purchasing a combination of goods, X and Y, that maximizes her utility given her budget constraint, i.e., MRSX,Y = PX/PY.Now assume that there is a decrease in the price of Y.In this case, to once again maximize her utility, the consumer will want to adjust her purchases of X and Y such that:

As we move down a linear demand curve, the absolute value of the price elasticity of demand:

In the case of a linear demand function, the marginal revenue function is twice as steep as the demand function.

Consider an indifference curve drawn for movies and pizzas.Which of the following statements about this indifference curve is false?

At a price of $5, consumers buy 200 units of good X.When the price falls to $4, quantity demanded increases to 250 units.We can conclude that over this range, demand is:

A consumer is in equilibrium, that is, a consumer is maximizing her utility when marginal utility and price are equal for each of the goods the consumer purchases.

If electricity demand is inelastic, and electric rates increase, which of the following is likely to occur?

The results of studies of the tobacco industry suggests that college and secondary school students who smoke are much more likely to respond to a change in price than adults who smoke.

Which of the following is not considered to be a determinant of the price elasticity of demand for a particular good?

Why is the price elasticity of demand a relative measure? That is, why is elasticity measured in percentage terms rather than in absolute terms?

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when P = 20, the point price elasticity of demand is equal to (approximately):

The last time the U.S.Post Office raised its prices for mail service critics of the rate increase argued that the Post Office's revenues would actually decline as a result of the price increase.It can be concluded that:

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?

When calculating the arc elasticity of demand, the percentage change in price (quantity)should be based on the average of the starting and ending prices (quantities).