Exam 6: Elasticity: the Responsiveness of Demand and Supply

You are the manager of a theater. At present the theater charges the same admission price of $8 to all customers, regardless of age. You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults. You tell your supervisor that your proposal is likely to increase revenues. What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.

Price elasticity of supply is used to gauge

When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?

If an 8 percent decrease in the price of lobster leads to a 15 percent decrease in the quantity supplied of lobster, then the supply of lobster is

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range?

Inelastic supply occurs whenever the elasticity of supply value is

Suppose at the current price, the demand for copper is estimated at -3.14. What happens to sales revenue if the government imposes a price ceiling below the free market equilibrium price in the copper market?

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

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.

If the demand for a steak is unit-elastic, then

An article in the Wall Street Journal noted the following: Instead of relying on a full-coach, round-trip unrestricted fare of about $2,000 between Cleveland and Los Angeles ...Continental [Airlines] since June has offered a $716 unrestricted fare in that market .... Through October, the test resulted in about the same revenue that Continental thinks it would have collected with its higher fare. Source: Scott McCartney, "Airlines Try Cutting Business Fares, Find They Don't Lose Revenue," Wall Street Journal, November 22, 2002. What is the absolute value of the price elasticity of demand on this airline route?

Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers?

The estimated price elasticities of demand for the products listed in the table as "Product A" are from Table 6-2 in the text. Indicate whether the products listed as "Product B" will have a more elastic or less elastic demand than the corresponding Product A.

The demand for heating oil in the short run is more elastic than the long-run demand for heating oil.

Total revenue equals

The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.

Supply is elastic whenever the elasticity value for supply is positive and greater than 1.

Suppose that at a price of $55, 100 units were sold while at a price of $33, 153 units were sold. Without calculating the price elasticity value, can you determine whether demand is elastic, unit-elastic, or inelastic? Explain your answer.

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, then an increase in tolls will result in

Suppose the value of the price elasticity of demand is -3. What does this mean?