Exam 6: Elasticity: The Responsiveness of Demand and Supply

If the cross-price elasticity of demand for computers and software is negative,this means the two goods are

For a given demand curve,will there be a greater loss of economic efficiency from a binding price floor when supply is elastic or inelastic? Illustrate your answer with a demand and supply graph.In your graph you must show two supply curves,one elastic and the other inelastic.

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

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

Jonah lives in a small town where there is only one Mexican restaurant.Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

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.

When there are few substitutes available for a good,demand tends to be relatively inelastic.

Suppose the value of the price elasticity of supply is 4.What does this mean?

The demand for gasoline in the short run is

Suppose the price elasticity of demand for cigarettes is -0.4.The FDA decides to regulate tobacco production,which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent.What is the percentage increase in price which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4,what would be the percentage increase in price?

Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to "feed his muscles" every day.On the basis of this information,what can you conclude about his price elasticity of demand for protein powder?

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

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.

During an economic expansion as consumer incomes rise,holding everything else constant,

In September 2006,the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E.coli bacteria.Following this recommendation,the food industry looked at alternatives and many turned to arugula.One Chicago distributor claimed,"The sale of the stuff has gone through the roof." Based on this information

If a firm's goal is to maximize revenue,it will price its product to correspond to the unit-elastic segment of its demand curve.

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.

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 demand for a life-saving drug was perfectly inelastic and the price doubled,the quantity demanded would

In order to prove that Motrin and Ibuprofen are substitutes,one should measure the ________ and get a ________.