Exam 6: Elasticity: the Responsiveness of Demand and Supply

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

The midpoint formula is used to measure the elasticity of demand between two points on a demand curve

Which of the following statements is true?

Figure 6-9 -Refer to Figure 6-9. The data in the diagram indicates that DVDs are

Figure 6-1 -Refer to Figure 6-1. A perfectly elastic demand curve is shown in

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

To calculate the price elasticity of supply we divide

Carrie Bradshaw claims that when it comes to buying shoes, "price is no object." If this is true, then her demand for shoes is

Suppose a decrease in the supply of bottled water results in a decrease in revenue. This indicates that

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.

The government of Bassaland is looking for new revenue sources. It is considering imposing an excise tax on two goods: palm wine and diapers. If the price elasticity of demand for the goods are -0.47 and -1.89 respectively, which good should it tax if the goal is to raise revenue? If the government wants to tax only one good, which good should it tax if the goal is to discourage consumption? Explain your answer.

Figure 6-3 -Refer to Figure 6-3. Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f.

A supply curve that is vertical

Figure 6-4 -Which of the following statements is true about the price elasticity of demand along a downward-sloping linear demand curve?

If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

Figure 6-4 -Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Source: Jonathan D. Glater and Alan Finder, "In New Twist on Tuition Game, Popularity Rises With the Price," New York Times, December 12, 2006 Based on the information above, the demand for Hendrix College education is

Suppose the current price of oil is $90 a barrel and the quantity supplied is 800 million barrels per day. If the price elasticity of supply for oil in the short run is estimated at 0.5, use the midpoint formula to calculate the percentage change in quantity supplied when the price of oil rises to $98 a barrel.

A recent study indicated that "Stricter college alcohol policies such as raising the price of alcohol, or banning alcohol on campus, decreases the number of students who use marijuana." This indicates that the cross-price elasticity between alcohol and marijuana is positive.

The Mass Rapid Transit (MRT) System in Hong Kong has been running significant losses. Transport Ministry officials have argued over whether to raise fares to combat the losses. One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours. Suppose that the current fare is $4 and the government is considering raising it to $6. Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day. a. What is the estimated elasticity of demand for MRT rides? b. What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system? c. Last year, the MRT system incurred a loss of $50,000 per day. Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

Suppose the supply of bicycles is price elastic. This means that