Exam 6: Elasticity: the Responsiveness of Demand and Supply

A supply curve that is vertical

The price elasticity of demand for Stork ice cream is -4.Suppose you're told that following a price increase, quantity demanded fell by 10 percent.What was the percentage change in price that brought about this change in quantity demanded?

Figure 6-4 -Refer to Figure 6-4.The absolute value of the price elasticity of demand at the midpoint of the demand curve is

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

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

Suppose a decrease in the supply of bottled water results in a decrease in revenue.This indicates that

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be

If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.

The U.S.government's focus on supply reduction efforts in its "war on drugs" has been relatively unsuccessful at addressing illegal drug use.Some economists believe that a successful anti-drug program must concentrate on reducing demand; for example, through drug education and voluntary treatment programs for addicts. A.Suppose the price elasticity of demand for cocaine is -0.5.What will happen to the equilibrium price, quantity, and total revenue from cocaine sales if the government succeeds in its efforts to reduce demand? What is likely to happen to the incentive to sell cocaine? B.Suppose the government continues to concentrate its efforts on supply reduction and is able to reduce the supply of cocaine.As a result of the reduction in supply the price of cocaine increases by 25 percent.If the price elasticity of demand is -0.5, what is likely to happen to the incentive to sell cocaine? C.Based on your answers, explain why one approach might be preferred over the other.

The current price of canvas messenger bags is $36 each and sales of the bags equal 400 per week.If the price elasticity of demand is -2.5 and the price changes to $44, how many messenger bags will be sold per week? Use the midpoint formula.

You are the manager of a theater.At present the theater charges the same admission price of $8 to all customers, regardless of age.You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults.You tell your supervisor that your proposal is likely to increase revenue.What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.

If demand for a product is perfectly inelastic, a change in price will not change total revenue.

In December 2014, the average price of gasoline in the United States was $2.50 per gallon and consumers bought 7 percent more gasoline than they had during April 2014, when the average price was $3.60 per gallon.Based on these numbers, what was the price elasticity of demand for gasoline from April 2014 to December 2014?

Figure 6-5 -Refer to Figure 6-5.The section of the demand curve labeled "A" represents

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

If a good has a negative income elasticity of demand, this indicates that the good is

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent.This indicates that the demand for tortilla chips is

If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are

Table 6-1 -Refer to Table 6-1.Suppose you own a bookstore.You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35.You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day.Compute the price elasticity of demand using the midpoint formula and these data.Select the correct implication from your work.

Which of the following is one reason why the income of small family farms has decreased over time?