Exam 6: Elasticity

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. At prices greater than $7, demand is _____; at prices below $7 demand is _____; and at $7 demand is _____.

If an increase in the price of a good leads to an increase in total revenue, the _____ curve is price _____.

The city government is losing millions of dollars on its buses and subways. The government proposes to increase the fare by 20% to raise revenue and has asked your advice. You know that the price elasticity of demand for mass transit in the city is approximately equal to 0.75. What do you think of the proposal to increase the fare to raise revenue for the city? Be as specific as possible.

If you wanted to make sure that your calculation of elasticity between two points was the same regardless of your initial point, you would use:

Demand for Wendy's hamburgers is more inelastic than the demand for all fast food.

The price elasticity of demand for soft drinks has been estimated to be 0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacturing), how will that affect total expenditures on soft drinks, all other things equal?

One would expect to see the supply become more price _____ as harvest season approaches and crops are being brought in from the fields.

A price floor above equilibrium will cause a larger surplus when demand is _____ and supply is _____.

A price ceiling below equilibrium will cause a larger shortage when demand is _____ and supply is _____.

For a normal demand curve, the price elasticity of demand will be:

The price elasticity of demand measures the responsiveness of the change in the:

Suppose the cross-price elasticity between two goods is 1.5. If the price of one good increases by 10%, then the quantity demanded of the other good will:

The price of coffee increases by 10%, and as a result, Alex purchases fewer doughnuts. For Alex, coffee and doughnuts are:

Since for most people, eating in restaurants is a luxury and eating at home is a necessity, the price elasticity of demand for food eaten at home is less than the price elasticity of demand for eating in restaurants.

Use the following to answer questions Figure: The Linear Demand Curve -(Figure: The Linear Demand Curve) Look at the figure The Linear Demand Curve. If the price is initially $10, then falls to $9, this will result in a(n) _____ in quantity demanded and a(n) _____ in total revenue.

The price of a gallon of gasoline increases 10% this year. As a result, which of the following events is MOST likely to occur?

The director of River City Public Transport recently stated, "The last seven times we increased bus fares, revenues dropped." This remark suggests the demand for bus service is elastic.

You are the manager of a supermarket, and you know that the cross-price elasticity of peanut butter to jelly is exactly -2.0.Because of a bad grape harvest, grape jelly prices are expected to rise by 10% next year. To account for the change in demand, you should stock 10% more peanut butter.