Exam 5: Elasticity and Its Applications: Part B

If the price elasticity of demand is equal to 1,then demand is unit elastic.

If we observe that when the price of chocolate decreases by 10%,quantity demanded increases by 25%,then the demand for chocolate is price elastic.

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.

If a firm is facing inelastic demand,then the firm should decrease price to increase revenue.

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

If the cross-price elasticity of demand for two goods is negative,then the two goods are substitutes.

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

A government program that reduces land under cultivation can help farmers by raising prices but hurts consumers.

If a firm that produces honey is facing elastic demand,then the firm would decrease price to increase revenue.

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

The flatter the demand curve that passes through a given point,the more elastic the demand.

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

If we observe that when the price of ice cream rises by 10%,ice cream manufacturers increase the quantity supplied of ice cream by 20%,then the price elasticity of supply is 2.

If we observe that when the price of chocolate increases by 10%,total revenue increases by 10%,then the demand for chocolate is unit price elastic.

The demand for desserts tends to be more inelastic than the demand for red velvet cake.