Chapter 5

Suppose that the full day price of a ski lift increases from $28.50 to $31.50, as a result, the average number of skiers using the lift decreases from 1100 to 900 per day. Find the price elasticity of demand using the mid-point method. a. -0.5 b. -2.0 c. -20 d. -3.0

b. -2.0

The price of a box of Keen Chocolates rises from $9.50 to $10.50, prompting consumers to buy instead more boxes of Tangy Candy, increasing its quantity demanded from 29,400 to 30,600. Find the cross-price elasticity of demand. a. -10.0 b. 0.4 c. -4.0 d. 2.5

b. 0.4

Which of the following will tend to make the demand of a good be more elastic? a. The proportion of income spend on this good is small. b. The use of a longtime period in measuring changes in quantity demanded. c. There are many substitutes for the good. d. The good is a necessity.

b. The use of a longtime period in measuring changes in quantity demanded. c. There are many substitutes for the good.

A steeper demand curve is considered to be relatively more _________ than a flatter demand curve, because for any given change in price, the change in quantity for the steeper curve is _________ than for the flatter curve.

Inelastic, smaller

If the demand curve is a downward sloping straight line, its elasticity of demand will be a. more elastic the steeper the demand curve is. b. more elastic the further you go up and to the left along the demand curve. c. more elastic the further you go down and to the right along the demand curve. d. the same at any point along the demand curve, because it is a straight line and so the slope is constant.

b. more elastic the further you go up and to the left along the demand curve.

Income elasticity of demand measures how a. strongly the price of a good is affected when there is a change in consumer income. b. strongly the quantity demanded of a good changes when there is a change in consumer income. c. many units of a good a consumer can buy given a certain income. d. strongly consumer purchasing power is affected by a change in the price of a good.

b. strongly the quantity demanded of a good changes when there is a change in consumer income.

Suppose that last year consumer incomes rose on average by 2%, causing the quantity demanded of French wine to increase from 97,000 to 103,000 bottles per month. Find the income elasticity of demand. a. -1/3 b. -3 c. 3 d. 1/3

c. 3

A new pesticide is developed that substantially increases grain farmer's productivity. How will this affect farmers? a. It will benefit them since the pesticide will increase their output making their revenues and profits will rise. b. It will benefit them since the pesticide will reduce their costs thus helping increase their profits. c. It will hurt them since the pesticide will probably be expensive making their costs will rise. d. It will hurt them since grain has an inelastic demand, so as the pesticide increases output, revenues will decrease.

d. It will hurt them since grain has an inelastic demand, so as the pesticide increases output, revenues will decrease.

If the elasticity of supply of a product is greater than 1, then a. said to be inelastic b. not very sensitive to change in price. c. said to be unit elastic. d. said to be elastic.

d. said to be elastic.

Suppose that the cross price elasticity between Pop Tarts and Frozen Waffles is 0.5. If the price of Pop Tarts increases by 16%, this should cause the quantity demanded of Frozen Waffles to __________ by ________ .

increase, 8%

If a firm with a price elasticity of demand of -1.5 chooses to decrease its price, its total revenue will ____________ , because the quantity demanded of the good will increase proportionally ______________ than the decrease in the price.

increase, more

If the elasticity of demand of a good is -0.5, this means that the good is _____________ and that a 10% increase in price will cause quantity demanded to _________________ by _______________ . increase

inelastic, decrease