Exam 5: Elasticity and Its Application

You own an art gallery and have recently got an exclusive contract to sell paintings by a new talented artist. You have determined that the price elasticity of demand for these paintings is 0.8. What will happen to your total revenue from selling these paintings if you raise your prices?

Suppose that after a 10 per cent increase in the price of timber, a forestry-company increases its supply of timber by four per cent in the next three months, and eight per cent by 12 months. This means that the elasticity of supply is _____.

If the measured elasticity is less than one it means that the demand for this good is inelastic.

A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent, the:

Why do farmers suffer declines in their total revenues when they become more productive as a group?

Last year, Amy bought two lenses for her SLR camera. Her income was $30 000. This year her income is $40 000. She has bought four new lenses for her camera. All else being constant it is obvious:

Given a linear demand curve has a constant slope, it follows that the elasticity of the linear demand curve is also always constant.

Get Smart University (GSU) is contemplating increasing tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue they are:

Narrowly defined markets tend to have more elastic demands than do broadly defined markets.

Supply tends to be:

You are an economist working for the telephone company. You discover that demand for phone calls during business hours is inelastic and demand for phone calls during evening hours is elastic. How could your company use this information to increase its total revenue?

Demand is said to be unit elastic if:

If the price of one good goes up, and this causes the quantity demanded of another good to go down, the cross-price elasticity of demand will be negative.

Consider the following pairs of goods. Which would you expect to have the more elastic demand? Why? a. water or diamonds b. insulin or nasal decongestant spray c. food in general or breakfast cereal d. gasoline over the course of a week or gasoline over the course of a year e. personal computers or IBM personal computers

Suppose a demand function yields an equilibrium price of $5.00 and an equilibrium quantity of 50 000 individual units. The equilibrium quantity could also be expressed in units of 1000, yielding an equilibrium of $5.00 and 50 units. How would expressing the quantity in units of 1000 affect the value of the slope and the elasticity?

Demand is said to be elastic if:

Demand is classed as inelastic if the elasticity coefficient is:

If sellers do NOT respond at all to a change in price:

The price elasticity of supply measures how responsive:

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