Question 1

A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:
"As a result [of the increase in milk prices],retail prices for ice cream are up 4 percent from last year....And ice cream consumption is down 3 percent."
Source: John Curran,"Ice Cream,They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press,July 23,2001.
Based on the information given,what is the price elasticity of demand for ice cream?

Accepted Answer

A) 0.75 (in absolute value) 
B) 1.33 (in absolute value) 
C) 12% 
D) We do not have enough information to calculate the elasticity.

Question 2

Suppose the current price of copper is $3 per pound and the quantity supplied is 200 pounds per day.If the price of copper falls to $2.50 per pound,the quantity supplied drops to 180 pounds per day.Use the midpoint formula to calculate the price elasticity of supply for copper.

Accepted Answer

The answer of Suppose the current price of copper is...

Question 3

Suppose at the current price,the demand for copper is estimated at -3.14.What happens to sales revenue if the government imposes a price ceiling below the free market equilibrium price in the copper market?

Accepted Answer

A) Sales revenue falls. 
B) Sales revenue rises. 
C) Sales revenue remains unchanged because copper is a necessity for most industries. 
D) It cannot be determined without information on prices.

Question 4

Supply is elastic whenever the elasticity value for supply is positive and greater than 1.

Accepted Answer

A) True 
 B)False

Question 5

If demand for a product is perfectly inelastic a change in price will not change total revenue.

Accepted Answer

A) True 
 B)False

Question 6

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing

Accepted Answer

A) the percentage change in quantity demanded of Coca-Cola by the percentage change in the quantity demanded of Pepsi-Cola. 
B) the percentage change in the price of Pepsi-Cola by the percentage change in quantity demanded of Coca-Cola. 
C) the percentage change in the price of Coca-Cola by the percentage change in the price of Pepsi-Cola. 
D) the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

Question 7

For a given demand curve,will there be a greater loss of economic efficiency from a binding price floor when supply is elastic or inelastic? Illustrate your answer with a demand and supply graph.In your graph you must show two supply curves,one elastic and the other inelastic.

Accepted Answer

The answer of For a given demand curve,will there be...

Question 8

A recent study indicated that "Stricter college alcohol policies such as raising the price of alcohol,or banning alcohol on campus,decreases the number of students who use marijuana." This indicates that the cross-price elasticity between alcohol and marijuana is positive.

Accepted Answer

A) True 
 B)False

Question 9

Most food products have low income and price elasticities of demand.

Accepted Answer

A) True 
 B)False

Question 10

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative,demand for using the toll road must be

Accepted Answer

A) inelastic. 
B) elastic. 
C) unit elastic. 
D) perfectly elastic.

Exam 6: Elasticity: the Responsiveness of Demand and Supply

Suppose the current price of copper is $3 per pound and the quantity supplied is 200 pounds per day.If the price of copper falls to $2.50 per pound,the quantity supplied drops to 180 pounds per day.Use the midpoint formula to calculate the price elasticity of supply for copper.

Suppose at the current price,the demand for copper is estimated at -3.14.What happens to sales revenue if the government imposes a price ceiling below the free market equilibrium price in the copper market?

Supply is elastic whenever the elasticity value for supply is positive and greater than 1.

If demand for a product is perfectly inelastic a change in price will not change total revenue.

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing

For a given demand curve,will there be a greater loss of economic efficiency from a binding price floor when supply is elastic or inelastic? Illustrate your answer with a demand and supply graph.In your graph you must show two supply curves,one elastic and the other inelastic.

A recent study indicated that "Stricter college alcohol policies such as raising the price of alcohol,or banning alcohol on campus,decreases the number of students who use marijuana." This indicates that the cross-price elasticity between alcohol and marijuana is positive.

Most food products have low income and price elasticities of demand.

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative,demand for using the toll road must be