Exam 5: Elasticity and Its Application

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

Table 5-6 -Refer to Table 5-6. As price rises from $10 to $15, the price elasticity of demand using the midpoint method is approximately

If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of corn.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

Table 5-13 Consider the following demand schedule. -Refer to Table 5-13. Using the midpoint method, between which two prices is price elasticity of demand most inelastic?

Table 5-10 -Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?

Suppose the price elasticity of demand for good A is 1.25. If the price of good A increases by 20%, what will be the resulting percentage change in quantity demanded for good A?

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price inelastic demand?

Suppose good X has a positive income elasticity of demand. This implies that good X could be i) a normal good. Ii) a necessity. Iii) an inferior good. Iv) a luxury.

At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price inelastic.

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

Use the graph shown to answer the following questions. Put the correct letters) in the blank. a. The elastic section of the graph is represented by section _______. b. The inelastic section of the graph is represented by section _______. c. The unit elastic section of the graph is represented by section . d. The portion of the graph in which a decrease in price would cause total revenue to fall would be _________. e. The portion of the graph in which a decrease in price would cause total revenue to rise would be _________. f. The portion of the graph in which a decrease in price would not cause a change in total revenue would be _________. g. The section of the graph in which total revenue would be at a maximum would be _______. h. The section of the graph in which elasticity is greater than 1 is . i. The section of the graph in which elasticity is equal to 1 is . j. The section of the graph in which elasticity is less than 1 is .

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

Figure 5-10 -Refer to Figure 5-10. Total revenue when the price is P2 is represented by the areas)

A decrease in supply will cause the smallest increase in price when

The demand for Godiva mint chocolates is likely quite elastic because