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Exam 5: Elasticity and Its Application

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Question 201

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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 price will

A) increase in both the aged cheddar cheese and bread markets.
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 both the aged cheddar cheese and bread markets.

E) A) and B)
F) A) and C)

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Question 202

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Which of the following expressions is valid for the price elasticity of demand?

) undefined
) undefined

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Question 203

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For which of the following goods is the price elasticity of demand most inelastic?

Figure 5-14 -Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic?

When demand is inelastic, a decrease in price increases total revenue.

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.

An increase in price causes an increase in total revenue when demand is

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

Figure 5-21 -Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $25 and $35?

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

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

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Figure 5-3 -Refer to Figure 5-3. The demand curve representing the demand for a luxury good with several close substitutes is

Suppose you manage a baseball stadium. To pay the salary for a star player, you would like to increase the total revenue from ticket sales. Should you increase or decrease the price of a ticket to increase revenue? Explain.

Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points B and C?

Figure 5-8 -Refer to Figure 5-8. When the price is $15, total revenue is

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

If the price elasticity of demand for a good is 0.3, then a 20 percent decrease in price results in a

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

Suppose demand is given by the equation: At what point along this demand curve will total revenue be maximized?