Exam 5: Elasticity and Its Application

Income elasticity of demand measures how:

Recently, the price of a Kit Kat fell from $1.80 to $1.50. As a result, the quantity demanded of Mars Bars decreased from 1200 to 1000. What would be the appropriate elasticity to compute? What does your answer tell you?

If the price elasticity of demand is 1.5, a price decrease will cause total revenue to increase.

If an increase in the price of a good results in an increase in total revenue for the firm, then:

The elasticity of demand for a good tends to increase if:

Cameras and films are likely to have:

A perfectly inelastic demand curve will be:

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

A vertical supply curve signifies that:

Suppose the price of product X is increased from $8.00 to $10.00 and as a result, the quantity of X demanded decreases from 1500 to 1000. Using the midpoint method, the price elasticity of demand for X in the given price range is:

If the demand for illegal drugs is inelastic, drug education campaigns should:

Table 5-1 Suppose a coffee shop faces the following demand schedule for coffee. -In any market, total revenue is the price:

Suppose the government increases the tax on gasoline in order to raise revenue. Since raising the gasoline tax would increase the price of gasoline, the government must be assuming that the:

Rate the supply curves on the graph shown from shortest time frame to longest time frame. Which curve is the most inelastic? Which curve is the most elastic?

Suppose that the price of timber rises by 10 per cent and a forest-product company responds by increasing harvest by five per cent. This means that this price elasticity of supply of timber by this company is two.

The demand for fruit is generally more elastic than the demand for Australian apples

Suppose the price elasticity of demand for wine is 1.60. A 12 per cent decrease in price will result in:

Use the graph below to answer the following questions. Put the correct letter in the blank. a. The elastic section of the graph is represented by section _____. b. The inelastic section of the graph is represented by section _____. c. The unit elastic section of the graph is represented by section _____. d. The portion of the graph in which a decrease in price would cause total revenue to fall is _____. e. The portion of the graph in which a decrease in price would cause total revenue to rise is _____. f. The portion of the graph in which a decrease in price would not cause a change in total revenue is _____. g. The section of the graph in which total revenue would be at a maximum is _____. h. The section of the graph in which elasticity is greater than one is _____. i. The section of the graph in which elasticity is equal to one is _____. j. The section of the graph in which elasticity is less than one is _____.

If sellers respond substantially to changes in the price, then:

Suppose that an increase in the price of rare cockatoos from $1000 to $1600 prompts breeders to increase the supply of these birds on the market from 600 to 1000. Using the midpoint method, what would be the elasticity of supply?