Exam 6: Elasticity: the Responsiveness of Demand and Supply

If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

If the slope of a demand curve is equal to -0.1 then

Which of the following statements is true?

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day.Using the midpoint formula, what is the price elasticity of demand (in absolute value)over this range?

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is

Which of the following explains why a firm would be interested in knowing the price elasticity of demand for a good it sells?

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

Total revenue is equal to

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?

Assume that the demand curve for sunblock is linear and downward sloping.Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?

Assume that when the price of cantaloupes is $2.50 the demand for cantaloupes is unit-elastic, and that the demand curve for cantaloupes is linear and downward sloping.If firms lower the price of cantaloupes to $2.00 which of the following statements can be made regarding the price elasticity of demand for cantaloupes?

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, then an increase in tolls will result in

A newspaper story on the effect of higher milk prices on the market for ice cream contained the following: "As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year....And ice cream consumption is down 3 percent." Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001. Based on the information given, what is the price elasticity of demand for ice cream?

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good.Calculate the price elasticity of supply and characterize the product.

If a firm raised its price and discovered that its total revenue fell, then the demand for its product is

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 Red Bull or soft drinks in general.

Bringing oil to the market is a relatively long and costly process.The whole process from exploration to pumping significant amounts of oil can take years.What does this indicate about the price elasticity of supply for oil?

Necessities tend to have more inelastic demands than luxuries.

A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price.If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is

The government of Bassaland is looking for new revenue sources.It is considering imposing an excise tax on two goods: palm wine and diapers.If the price elasticity of demand for the goods are -0.47 and -1.89 respectively, which good should it tax if the goal is to raise revenue? If the government wants to tax only one good, which good should it tax if the goal is to discourage consumption? Explain your answer.