Chapter 5 - Elasticity and Its Application

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is

-0.71, and X and Y are complements.

Refer to Figure 5-1. Between point A and point B, the slope is equal to

-1/4, and the price elasticity of demand is equal to 3/2.

Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs is

-2.33, and hot dogs are an inferior good.

Refer to Table 5-4. Using the midpoint method, when price rises from $8 to $12, the price elasticity of demand is

1

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to

1.5

Refer to Table 5-11. Which scenario describes the market for oil in the long run?

A

Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P = $15) and (Q = 2,400, P = $12). Then which of the following scenarios is possible?

Both of these points lie on section BC of the demand curve.

Refer to Figure 5-12. Sellers' total revenue would increase if the price

All of the above are correct.

If the price elasticity of demand for a good is 2, then a 10 percent decrease in the quantity demanded must be the result of

a 5 percent increase in the price

If demand is price inelastic, then

buyers do not respond much to a change in price

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to

decrease the total revenue of wheat farmers.

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

demand for ice cream cones in this price range is elastic.

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

diamond earrings

The flatter the demand curve through a given point, the

greater the price elasticity of demand at that point.

For which of the following goods is the income elasticity of demand likely lowest?

housing

When demand is perfectly inelastic, the price elasticity of demand

is zero, and the demand curve is vertical

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

music downloads

Economists compute the price elasticity of demand as the

percentage change in quantity demanded divided by the percentage change in price.

A perfectly inelastic demand implies that buyers

purchase the same amount as before when the price rises or falls.

The smaller the price elasticity of demand, the

steeper the demand curve will be through a given point.