Exam 6: Elasticity

Assume the price elasticity of demand for corn has been estimated to be 2.33. Flash floods destroy 10% of the nation's crop of corn. Which of the following best describes how this will affect total expenditures on corn, all other things equal?

A university bookstore decreased the price of a sweatshirt from $20 to $18 and discovered that sweatshirt sales increased from 100 per week to 120 per week. Use the midpoint formula to compute the price elasticity of demand for sweatshirts.

If the percentage change in the quantity demanded of a good is greater than the percentage change in income and in the same direction, then this good will have an income elasticity _____1, and it is a(n) _____ good.

Use the following to answer questions Figure: The Demand Curve -(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $3, total revenue is _____. If the price is $4, total revenue is _____.

A perfectly inelastic demand curve for insulin would mean that the quantity demanded does NOT respond at all to changes in the price of insulin.

Use the following to answer questions Figure: The Linear Demand Curve II -(Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. If price was initially set at $8 and then increased to $10, total revenue would:

If the absolute value of the price elasticity of demand is greater than 1:

Suppose the cross-price elasticity between two goods is zero. What does this tell you about these two goods?

The price elasticity of demand for gasoline is likely to be higher in the long run than in the short run.

If the quantity demanded is 5,000 gallons at $3.00 per gallon, the price elasticity of demand for gasoline is 0.5, and the price rises to $3.15 per gallon, how many gallons of gas will be sold at this higher price? (Use the conventional method, not the midpoint method, of calculating price elasticity of demand.)

Use the following to answer questions Figure: The Demand Curve -(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method the price elasticity of demand between $3 and $4 is approximately:

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

The price elasticity of demand for milk has been estimated to be somewhere between 0.49 and 0.63. If a new system of feeding and milking cows yields a 15% increase in the production of milk throughout the country, how will that affect total expenditures on milk, all other things equal?

Use the following to answer questions Figure: The Linear Demand Curve -(Figure: The Linear Demand Curve) Look at the figure The Linear Demand Curve. As a producer, you are interested in maximizing your total revenues in this market. At what price should you sell your good? What is the corresponding total revenue?

There is NO total revenue test for price elasticity of supply because:

If the cross-price elasticity of demand between hamburgers and cheese is positive, these two goods must be complements.

Use the following to answer questions Figure: The Demand for e-Books -(Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. What is the price elasticity of demand (by the midpoint method) when the price increases from $6 to $8?

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:

If the cross-price elasticity of demand between rice and beans is -0.25, rice and beans are complements.