Deck 10: Elasticity

Question 1

A company that supplies water to a city faces a market demand curve of P = 240 - 3q.At what quantity does the company maximize total revenue?

A)q = 20
B)q = 40
C)q = 60
D)q = 80
E)None of the above

Answer 1

q = 40

Question 2

Consider a market with a demand curve of P = 150 - q and a supply curve of P = 2q.What is the price elasticity of demand at the market equilibrium?

A)-1/2
B)-1
C)-3/2
D)-2
E)None of the above

Answer 2

-2

Question 3

Which statement is true?

A)The cross-price elasticity of demand for two substitute products is zero.
B)The cross-price elasticity of demand for two substitute products is negative.
C)The cross-price elasticity of demand for two substitute products is positive.
D)Either a or B

Answer 3

The cross-price elasticity of demand for two substitute products is positive.

Question 4

Consider a market with a demand curve of P = 150 - q and a supply curve of P = 2q.What is the price elasticity of supply at the market equilibrium?

A)1/2
B)1
C)3/2
D)2
E)None of the above

Question 5

A company that supplies water to a city faces a market demand curve of P = 150 - 2q.At what price does the company maximize total revenue?

A)P = 75
B)P = 150
C)P = 50
D)P = 100
E)None of the above.

Question 6

If the quantity supplied increases from 100 to 150 if the price rises from 5 to 10, what is the price elasticity of supply according to the arc (or midpoint) method?

A)1/5
B)2/5
C)3/5
D)1
E)None of the above

Question 7

If an increase in income by 15 per cent results in a 45 per cent increase in the quantity demanded, what is the income elastic of the good?

A)3/2
B)3
C)1/2
D)1/3
E)None of the above

Question 8

Which statement is true?

A)The price elasticity of demand is constant along a straight-line demand curve.
B)The price elasticity of demand varies along a straight-line demand curve.
C)Given slope is constant, the price elasticity of demand is constant along a straight-line demand curve.
D)a and c
E)None of the above.

Question 9

The quantity demanded increases from 20 to 30 units as the price falls from 50 to 40.What is the price elasticity of demand using the arc (or midpoint) method?

A)-1/5
B)-9
C)-1/2
D)-9/5
E)None

Question 10

What is the price elasticity of supply if the supply curve is given by P = 2q?

A)1
B)2
C)3
D)4
E)None of the above