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Exam 5: Elasticity and Its Application

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Question 111

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Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

A) negative, and the good is an inferior good.
B) negative, and the good is a normal good.
C) positive, and the good is a normal good.
D) positive, and the good is an inferior good.

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Question 112

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Figure 5-4 -Refer to Figure 5-4.Assume,for the good in question,two specific points on the demand curve are (Q = 1,000,P = $40) and (Q = 1,500,P = $30) .Then which of the following scenarios is possible?

A) Both of these points lie on the section of the demand curve from B to C.
B) The vertical intercept of the demand curve is the point (Q = 0, P = $60) .
C) The horizontal intercept of the demand curve is the point (Q = 1,800, P = $0) .
D) Any of these scenarios is possible.

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Question 113

Multiple Choice

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You and your college roommate eat three packages of Ramen noodles each week.After graduation last month,both of you were hired at several times your college income.Your roommate still enjoys Ramen noodles very much and buys even more,but you plan to buy fewer Ramen noodles in favor of foods you prefer more.When looking at income elasticity of demand for Ramen noodles,yours would

At price of $1.25,a paper manufacturer is willing to supply 150 spiral notebooks per day.At a price of $1.50,the paper manufacturer is willing to supply 175 spiral notebooks per day.Using the midpoint method,the price elasticity of supply is about

Suppose you are in charge of setting prices at a local sandwich shop.The business needs to increase its total revenue,and your job is on the line.If the demand for sandwiches is elastic,you

Using the midpoint method,compute the elasticity of demand between points A and B.Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded.Now compute the elasticity of demand between points B and C.Is demand along this portion of the curve elastic or inelastic?

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%,then the price must have decreased by 3%.

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

If the quantity demanded of a certain good responds only slightly to a change in the price of the good,then the

Reta's income elasticity of demand for steak dinners is 1.50.All else equal,this means that if her income increases by 20 percent,she will buy

Figure 5-2 -Refer to Figure 5-2.As price falls from Pa to Pb,we could use the three demand curves to calculate three different values of the price elasticity of demand.Which of the three demand curves would produce the smallest elasticity?

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

For which pairs of goods is the cross-price elasticity most likely to be negative?

Figure 5-5 -Refer to Figure 5-5.At a price of $30 per unit,sellers' total revenue equals

Supply tends to be more elastic in the short run and more inelastic in the long run.

Figure 5-3 -Refer to Figure 5-3.Which demand curve is unit elastic?

Figure 5-5 -Refer to Figure 5-5.Using the midpoint method,between prices of $12 and $18,price elasticity of demand is

Figure 5-4 -Refer to Figure 5-4.The section of the demand curve from A to B represents the

Figure 5-4 -Refer to Figure 5-4.If the price increases in the region of the demand curve between points A and B,we can expect total revenue to

Between 1950 and today there was a