Micro Economics Exam #2

The local convenience store advertises 50% off frozen slushies. As a result of the sale, the store sells 80% more slushies, but 20% fewer fountain drinks. The cross elasticity between slushies and fountain drinks is _____.

0.4

If the average price of new homes rose by 15% last year, and, as a result, home builders increased the supply of new homes by 10%, the price elasticity of supply is _____, and the supply of new homes is _____.

0.67; inelastic

Jack owns a pumpkin patch and has been selling pumpkins for $10. As Halloween approaches, he worries about having too many unsold pumpkins, so he lowers the price by 20%. If the price elasticity for pumpkins is 1.5, how many more pumpkins will Jack sell?

30% more

Which statement is NOT true about the elasticity of supply?

Elasticity of supply cannot be a negative number.

Tracey sells 100 gourmet cupcakes per day at $2 each. She is considering raising her price to $2.50 per cupcake in order to increase her revenues. If the price elasticity of demand for Tracey's cupcakes is 2, would she increase her revenues?

No; revenues would fall because she would sell far fewer cupcakes

Which of the following would be most inelastic?

a cavity filled at the dentist

Suppose that the price of African safaris fell from $4,000 to $3,200 per person, and, as a result, tour operators reduced the number of trips offered by 25%. Using the midpoint method, the price elasticity of supply for African safaris is _____.

1.13

If the cross elasticity of demand between fly rods and reels is -0.8, a decrease in the price of rods would _____ sales of reels because the two goods are _____.

increase; complements

In the town of Skateville, average incomes fall by 20% due to a recession; as a result the sales of skateboards fall by 15%. The income elasticity of demand is _____, and skateboards are a(n) _____ good.

0.75; normal

If the price of electricity falls by 10% per kilowatt hour, and the quantity demanded for electricity subsequently increases by 8%, the price elasticity of demand for electricity is _____ and would be classified as an _____ good.

0.8; inelastic

Suppose the price of a bag of jelly beans rises from $1.60 to $2.00, with the result that sales of jelly beans falls from 120 bags to 80 bags a day. Using the midpoint method, what is the elasticity of demand for jelly beans?

1.80

Due to a drought in Georgia, the market price for peanuts rises by 20% nationwide. If the price elasticity of demand for peanuts is 0.8, what would happen to total revenue for peanut farmers who were not affected by the drought?

Total revenue would fall as quantity demanded falls by 16%.

Which factor would increase elasticity the most?

an increase in the number of tablet brands being offered