Exam 6: Elasticity: the Responsiveness of Demand and Supply

Table 6-1 -Refer to Table 6-1. Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the mid-point formula and these data. Select the correct implication from your work.

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing

For each pair of items below determine which product would have the higher price elasticity of demand (in absolute value). a. Insulin for a diabetic or aspirin for someone suffering a headache. b. A new Whirlpool 27 cu. ft. side-by-side refrigerator or electricity to power your all-electric home. c. A can of Red Bull or soft drinks in general.

If a firm is in an antitrust court case being accused of monopolizing a product, the firm would hire an economist to show

Explain the relationship between price elasticity of demand and total revenue.

Which of the following statements about the price elasticity of demand is correct?

Consider the following types of demand curves: a. a vertical demand curve B. a horizontal demand curve C. a linear downward-sloping demand curve Which of the demand curves listed exhibits a price elasticity of demand coefficient that remains constant along the demand curve?

If the price elasticity of demand is unit-elastic, a 10 percent increase in price will result in a 10 percent increase in revenue.

The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in productivity?

Linesha, a college student working part-time, receives a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information,

Figure 6-4 -Refer to Figure 6-4. At the midpoint of the demand curve, in absolute value,

If the demand for iPods is price elastic, then

Figure 6-6 -Refer to Figure 6-6. As price falls from PA to PB, the quantity demanded increases most along D1; therefore,

Consider the following pairs of items: a. shampoo and conditioner B. iPhones and earbuds C. a laptop computer and a desktop computer D. beef and pork E. air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity?

Figure 6-11 -If firms do not increase their quantity supplied when price changes, then supply is

The larger the share of a good in a consumer's budget, holding everything else constant, the

Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded and total revenue when price increases?

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

The process involved in bringing oil to world markets can take years. Substitutes for oil-based products such as gasoline are limited. As a result

Table 6-3 -Refer to Table 6-3. Over what range of prices is the demand elastic?