Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The difference between slope and elasticity is that

Accepted Answer

A)  slope is a ratio of two changes,and elasticity is a ratio of two percentage changes. 
B)  slope is a ratio of two percentage changes,and elasticity is a ratio of two changes. 
C)  slope measures changes in quantity demanded more accurately than elasticity. 
D)  none of the above;there is no difference between slope and elasticity.

Question 3

If the price elasticity of demand for a good is 0.8,then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

Accepted Answer

A)  a 0.2 percent increase in the price of the good 
B)  a 3.2 percent increase in the price of the good 
C)  a 4.8 percent increase in the price of the good 
D)  a 5 percent increase in the price of the good

Question 4

On a certain supply curve,one point is (quantity supplied = 200,price = $4.00)and another point is (quantity supplied = 250,price = $4.50).Using the midpoint method,the price elasticity of supply is about

Accepted Answer

A)  0.22. 
B)  0.53. 
C)  1.00. 
D)  1.89.

Question 5

You own a small town movie theatre.You currently charge $5 per ticket for everyone who comes to your movies.Your friend who took an economics course in college tells you that there may be a way to increase your total revenue.Given the demand curves shown,answer the following questions.  
  
a.What is your current total revenue for both groups?
b.The elasticity of demand is more elastic in which market?
c.Which market has the more inelastic demand?
d.What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic?
e.What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic?
f.Given the graphs and what your friend knows about economics,he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3.How much could you increase total revenue if you take his advice?

Accepted Answer

The answer of You own a small town movie theatre.You...

Question 6

Figure 5-9 
-Refer to Figure 5-9.If price increases from $10 to $15,total revenue will

Accepted Answer

A)  increase by $20,so demand must be inelastic in this price range. 
B)  increase by $5,so demand must be inelastic in this price range. 
C)  decrease by $20,so demand must be elastic in this price range. 
D)  decrease by $10,so demand must be elastic in this price range.

Question 7

Scenario 5-2
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 5-2.The equilibrium quantity will

Accepted Answer

A)  increase in the aged cheddar cheese market and increase in the bread market. 
B)  increase in the aged cheddar cheese market and decrease in the bread market. 
C)  decrease in the aged cheddar cheese market and increase in the bread market. 
D)  decrease in the aged cheddar cheese market and decrease in the bread market.

Question 8

Scenario 5-3
Milk has an inelastic demand and beef has an elastic demand.Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-3.The equilibrium price will

Accepted Answer

A)  increase in the milk market and increase in the beef market. 
B)  increase in the milk market and decrease in the beef market. 
C)  decrease in the milk market and increase in the beef market. 
D)  decrease in the milk market and decrease in the beef market.

Question 9

If the price of milk rises,when is the price elasticity of demand likely to be the lowest?

Accepted Answer

A)  immediately after the price increase 
B)  one month after the price increase 
C)  three months after the price increase 
D)  one year after the price increase

Exam 5: Elasticity and Its Application

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

The difference between slope and elasticity is that

If the price elasticity of demand for a good is 0.8,then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

On a certain supply curve,one point is (quantity supplied = 200,price = $4.00) and another point is (quantity supplied = 250,price = $4.50) .Using the midpoint method,the price elasticity of supply is about

Figure 5-9 -Refer to Figure 5-9.If price increases from $10 to $15,total revenue will

Scenario 5-3 Milk has an inelastic demand and beef has an elastic demand.Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-3.The equilibrium price will

If the price of milk rises,when is the price elasticity of demand likely to be the lowest?