Exam 5: Elasticity and Its Application

Necessities tend to have price inelastic demands, whereas luxuries have price elastic demands.

When demand is inelastic, a decrease in price will cause:

Table 5-2 Qualities purchased -Refer to Table 5-2. Good Y is:

Drug interdiction, which reduces the supply of drugs, may increase drug-related crime because the demand for drugs is inelastic.

What is elasticity and why do economists use the concept?

The Conservation Reserve Program pays farmers to take out of production highly erodible land. How will this program affect farm income and the wellbeing of consumers?

Price elasticity of supply measures how much the quantity supplied responds to changes in the price.

Suppose that you are in charge of pricing at a local surf rental shop. The business needs to increase revenue and your job is on the line. If the supply of surf boards is elastic, you:

A perfectly elastic demand implies that:

Normal goods have positive income elasticities of demand, while inferior goods have negative income elasticities of demand.

As price elasticity of demand increases, the demand curve gets steeper and steeper.

If the price elasticity of demand is equal to zero, demand is unit elastic.

What are the determinants of price elasticity of demand and how does each affect elasticity?

At a price of $2.00 per kilo, 1500 kilos of kiwifruit are supplied and at a price of $3.00 per kilos, 2500 kilos of kiwifruit are supplied. What is the price elasticity of the supply of kiwifruit between these two prices, using the midpoint formula?

Demand is said to be inelastic if:

The percentage change in the price of a good, divided by the percentage change in the quantity demanded, will generate the price elasticity of demand for that good.

When the Shaffers had a monthly income of $4000, they would usually eat out eight times a month. Now that the couple makes $4500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. (Is a restaurant meal a normal or inferior good to the couple?)

In general, a firm will be able to generate the greatest response to a price increase:

Table 5-1 Suppose a coffee shop faces the following demand schedule for coffee. -Referring to Table 5-1, if the shop increases the price from $2.00 to $3.00, the price elasticity of demand will (according to the mid-point method) be:

A demand curve that is horizontal is perfectly elastic and the elasticity is equal to one.