Exam 5: Elasticity and Its Application

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

Figure 5-4 -Refer to Figure 5-4. Assume the section of the demand curve from A to B corresponds to prices between $6 and $12. Then, when the price increases from $8 to $10,

If soybean farmers know that the demand for soybeans is price inelastic, in order to increase their total revenues they should

If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

The price elasticity of demand measures

The price elasticity of supply measures how responsive

If the price elasticity of supply for a good is equal to infinity, then the

Figure 5-5 -Refer to Figure 5-5. At a price of $12 per unit, sellers' total revenue equals

A key determinant of the price elasticity of supply is

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Necessities such as food and clothing tend to have

If the price elasticity of supply is 0.2, and a price increase led to a 3% increase in quantity supplied, then the price increase is about

Scenario 5-1 Suppose that the supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. -Refer to Scenario 5-1. The price elasticity of supply for bread could be

Figure 5-3 -Refer to Figure 5-3. Which demand curve is perfectly elastic?

Figure 5-5 -Refer to Figure 5-5. At a price of $30 per unit, sellers' total revenue equals

The demand for Rice Krispies is more elastic than the demand for cereal in general.

If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a result, then the price elasticity of demand is 3.

Suppose the price of potato chips decreases from $1.45 to $1.25 and, as a result, the quantity of potato chips demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for potato chips in the given price range is

When the price of used cds is $4, Daphne buys five per month. When the price is $3, she buys nine per month. Daphne's demand for used cds is

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of