Chapter 5 Practice Problems

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000. At which of the following prices does Small Town Cablevision earn the greatest total revenue?

$30 per month

If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is

1.00

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable television in Small Town?

1.4

A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand? Diamond necklace or Chemotherapy for cancer patients?

Chemotherapy for cancer patients

A good with many close substitutes is likely to have relatively______ demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.

Elastic

Which of the following would cause a demand curve for a good to be price inelastic?

The good is a necessity.

If the income elasticity of demand for a good is negative, it must be

an inferior good.

If the cross-price elasticity between two goods is negative, the two goods are likely to be

complements

A decrease in supply (shift to the left) will increase total revenue in that market if

demand is price inelastic.

If consumers think that there are very few substitutes for a good, then

demand would tend to be price inelastic.

If demand is linear (a straight line), then price elasticity of demand is

elastic in the upper portion and inelastic in the lower portion.

Other things being equal, the demand for natural gas will tend to be _______ elastic in the short run than in the long run.

less

If supply is price inelastic, the value of the price elasticity of supply must be

less than 1.

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

price elastic

If there is excess capacity in a production facility, it is likely that the firm's supply curve is

price elastic.

In general, a flatter demand curve is more likely to be

price elastic.

In general, a steeper supply curve is more likely to be

price inelastic.

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

reduce total revenue to farmers as a whole because the demand for food is inelastic.

The price elasticity of demand is defined as

the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.

The demand for which of the following is likely to be the most price inelastic?

transportation

If an increase in the price of a good has no impact on the total revenue in that market, demand must be

unit price elastic.

If a supply curve for a good is price elastic, then

zero