CHAPTER 5 HOMEWORK
You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand for the first few months after a price change is about −0.3. Select the statement that best describes the results of raising the fare in the short run.
Total revenue rises immediately after the fare increase, since demand over the immediate period is price inelastic.
The government imposes an excise tax on house paint. The house paint tax incidence takes place within a market where the supply of house paint is elastic and the demand for house paint is inelastic. Who pays the most of the excise tax?
consumers of house paint
The price for a cell phone case is $25 with the quantity demanded at 10,000 a day. As time goes on the price for a cell phone case increases to $30 and the quantity demanded decreases to 5,000 a day. Based on the price elasticity of demand using the midpoint method, this cell phone case is
elastic
Teenage workers are assumed to have ________ labor supply; therefore a 5% increase in wages would result in ________ percentage change in quantity of labor supplied.
elastic; greater
The electric power company in a city increased its prices by 15% this year. Since the demand for electricity is a(n) ________ demand in the short run, the equilibrium price will ________.
inelastic; greatly increase
Analyze the following diagram: Demand "D" represents a demand curve that is
perfectly inelastic.
A new technological breakthrough increases production for an industry and shifts the supply curve to the right. If the firm ________, then the firm will likely be happy about this new technology.
produces products that are considered elastic
Total revenue is defined as ________ and represented as ________.
the price of a product times the number of units sold; TR=P x Qd
Elasticity allows economists to measure
the responsiveness of one variable to changes in another variable.
Which of the following describe a product with an inelastic demand?
An appointment with a dentist.