Exam 5: Elasticity and Its Application

Necessities such as food and clothing tend to have

Scenario 5-4 The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. -Refer to Scenario 5-4. The change in equilibrium quantity will be

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

Suppose demand is given by the equation: Using the midpoint method, what is the price elasticity of demand between $2 and $4?

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

If we observe that when consumers' incomes rise by 10%, the quantity demanded of ice cream increases by 5%, then ice cream is an inferior good.

Which of the following statements about the consumers' responses to rising gasoline prices is correct?

Table 5-4 The following table shows the demand schedule for a particular good. -Refer to Table 5-4. Using the midpoint method, when price rises from $8 to $12, the price elasticity of demand is

Which of the following is likely to have the most price inelastic demand?

On a certain supply curve, one point is quantity supplied = 200, price = $2.00) and another point is quantity supplied= 250, price = $2.50). Using the midpoint method, the price elasticity of supply is about

Refer to Figure 5-5. At a price of $10 per unit, sellers' total revenue equals

In which of the following situations will total revenue increase?

Demand is said to be inelastic if the

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

Scenario 5-8 Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000. -Refer to Scenario 5-8. Considering the cross price elasticity of demand for mobile and landline telephone service, is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about

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

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of

The federal government is concerned about obesity in the United States. Congress is considering two plans. One will ban the production and sale of "junk food." The other will increase nutrition­education programs and include substantial advertising campaigns to encourage healthy eating habits. The junk-food ban program

Scenario 5-4 The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. -Refer to Scenario 5-4. The equilibrium quantity will