Exam 5: Elasticity and Its Applications

Because producing more oil requires a significant increase in exploration and drilling costs, the supply curve for oil is:

Farmers can produce more milk at lower cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is:

On October 1, 2009, the Nintendo Wii's Japanese price dropped from ¥25,000 to ¥20,000. In the three months after the price drop, Japanese sales of the Wii were approximately 1,040,000. Twelve months earlier, over the same interval at the high price, sales totaled 890,000. Using the midpoint method, what is the absolute value of the price elasticity of demand of a Wii console? Is it an elastic or inelastic good?

The supply curve for oil is ________ because ________.

The supply of ______ tends to be more elastic.

If both the supply of and the demand for a good are highly elastic, a shift of either curve will always result in

A new per unit subsidy for almond production in the United States increases the world supply of almonds. If almonds are inelastically demanded, what will happen to total revenues from almond production?

If the demand for currently illegal recreational drugs is highly inelastic and these drugs became legal, prices would fall. An economist would expect which of the following to happen in response to the lower price?

Discuss the effectiveness of the slave redemption programs in Sudan when it is assumed that the elasticity of the supply of slaves is perfectly inelastic. Use a supply and demand diagram to help illustrate your response.

If demand is inelastic, a price ________ causes ________ in total revenue.

Are there more substitutes for Cheerios or for cereal in general? For which good is demand more elastic?

Supply tends to be ________ in local markets, and ________ in global markets.

If an increase in the price of oil by 10 percent would cause the quantity demanded for oil to fall by 5 percent, the elasticity of demand for oil in absolute terms is:

Why do supply curves tend to be more elastic over time?

If the demand for a good is estimated to be _____, then firms producing the good will experience an increase in total revenue if prices fall.

One of the determinants of the elasticity of demand is whether a good is a luxury or a necessity.

The demand curve for Froot Loops breakfast cereal is very elastic because:

Walter provides lawn-cutting services and notices that his total revenue increases when he cuts prices. The elasticity of demand for his services is:

Whether an increase in price leads to an increase or decrease in total revenue depends on the elasticity of supply.

Suppose that large oil reserves are discovered off the coast of Cuba, and these reserves will increase the world's supply of oil by 2.5 percent. If the elasticity of demand and supply of oil are 0.50 and 0.40, respectively, what happens to the price of oil?