Exam 5: Elasticity and Its Applications: Part B

Necessities tend to have inelastic demands,whereas luxuries tend to have elastic demands.

Demand is inelastic if the price elasticity of demand is greater than 1.

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

Drug interdiction,which reduces the supply of drugs,will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded.

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

If the price elasticity of demand is equal to 0,then demand is unit elastic.

A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.

The demand for Rice Krispies is more elastic than the demand for cereal in general.

If demand is perfectly elastic,the demand curve is horizontal,and the price elasticity of demand equals 1.

Normal goods have positive income elasticities of demand,while inferior goods have negative income elasticities of demand.

OPEC failed to maintain a high price of oil in the long run,partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

If a supply curve is horizontal,then supply is said to be perfectly elastic,and the price elasticity of supply approaches infinity.

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

If the income elasticity of demand for a good is negative,then the good must be an inferior good.

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

Suppose that when the price rises by 20% for a particular good,the quantity demanded of that good falls by 10%.The price elasticity of demand for this good is equal to 2.0.

Along the elastic portion of a linear demand curve,total revenue rises as price rises.

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

In general,demand curves for necessities tend to be price elastic.