Exam 6: Elasticity: the Responsiveness of Demand and Supply

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

There are a limited number of original Picasso paintings.This means that the supply of original Picasso paintings is perfectly inelastic.

The price elasticity of supply measures

If the income elasticity for canned food is 0.8,then canned food is an inferior good.

If a good has a negative income elasticity of demand,this indicates that the good is

Along a downward sloping,linear demand curve,total revenue is the greatest

If a supply curve is a horizontal line,supply is said to be

Suppose a decrease in the supply of paper results in an increase in revenue.This indicates that

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

We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because

Economists have estimated that the cross-price elasticity of demand between beer and spirits is 0.15,the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03.These elasticities mean that

Demand for a luxury item,such as a yacht,is likely to be

If demand is perfectly inelastic,the absolute value of the price elasticity coefficient is

Of the following,which is the best example of good with a perfectly inelastic demand?

Suppose you are considering buying stock in the stock market,and your objective is to maximize your net worth.Furthermore,your study of the market reveals that the economy will be slowing down over the next several months.Under these conditions,it would be best to purchase stock in companies that produce

If the absolute value of the price elasticity of demand for gasoline is 0.5,then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.

The slope of a demand curve is not used to measure the price elasticity of demand because

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value).This means that a 20 percent increase in the price of beef,holding every thing else constant,will cause the quantity of beef demanded to

The U.S.government's focus on supply reduction efforts in its "war on drugs" has been relatively unsuccessful at addressing illegal drug use.Some economists believe that a successful anti-drug program must concentrate on reducing demand; for example,through drug education and voluntary treatment programs for addicts. a.Suppose the price elasticity of demand for cocaine is -0.5.What will happen to the equilibrium price,quantity and total revenue from cocaine sales if the government succeeds in its efforts to reduce demand? What is likely to happen to the incentive to sell cocaine? b.Suppose the government continues to concentrate its efforts on supply reduction and is able to reduce the supply of cocaine.As a result of the reduction in supply the price of cocaine increases by 25 percent.If the price elasticity of demand is -0.5,what is likely to happen to the incentive to sell cocaine? c.Based on your answers,explain why one approach might be preferred over the other.

When the price of Starbucks coffee increased by 8 percent,the quantity demanded of Peets coffee increased by 10 percent.Calculate the cross price elasticity of demand between Starbucks coffee and Peets coffee.What is the relationship between the two products?