homework 3

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about a. 2.2. b. 2.0. c. 200. d. 0.45.

a. 2.2.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the a. flatter the demand curve will be. b. further to the right the demand curve will sit. c. steeper the demand curve will be. d. closer to the vertical axis the demand curve will sit.

a. flatter the demand curve will be.

Refer to Figure 5-5. If the price decreased from $36 to $12, total revenue would a. increase by $4,800, and demand is elastic between points X and Z. b. decrease by $7,200, and demand is inelastic between points X and Z. c. decrease by $4,800, and demand is inelastic between points X and Z. d. increase by $7,200, and demand is elastic between points X and Z.

a. increase by $4,800, and demand is elastic between points X and Z.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is a. inelastic. b. elastic. c. perfectly inelastic. d. unit elastic.

a. inelastic.

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. positive, and the good is a normal good. b. negative, and the good is a normal good. c. positive, and the good is an inferior good. d. negative, and the good is an inferior good.

a. positive, and the good is a normal good.

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by a. 80 percent. b. 40 percent. c. 30 percent. d. 250 percent.

b. 40 percent.

A decrease in supply will cause the largest increase in price when a. demand is elastic and supply is inelastic. b. both supply and demand are inelastic. c. both supply and demand are elastic. d. demand is inelastic and supply is elastic.

b. both supply and demand are inelastic.

If the cross-price elasticity of two goods is negative, then the two goods are a. necessities. b. complements. c. normal goods. d. inferior goods.

b. complements.

The supply of a good will be more elastic, the a. more the good is considered a luxury. b. longer the time period being considered. c. broader is the definition of the market for the good. d. larger the number of close substitutes for the good.

b. longer the time period being considered.

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is a. 2.11. b. 0.11. c. 0.47. d. 1.12.

c. 0.47.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is a good immediately after a price increase and B is that same good three yearsafter the price increase. b. A has fewer substitutes than B. c. A is a luxury and B is a necessity. d. A is a good after an increase in income and B is that same good after a decrease in income.

c. A is a luxury and B is a necessity.

For which pairs of goods is the cross-price elasticity most likely to be positive? a. Peanut butter and jelly b. Bicycle frames and bicycle tires c. Pens and pencils d. Digital college textbooks and iPhones

c. Pens and pencils

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will a. raise both price and total revenues. b. lower price and raise total revenues. c. lower both price and total revenues. d. raise price and lower total revenues.

c. lower both price and total revenues.

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that a. the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. b. both the mayor and the city manager think that demand is inelastic. c. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic. d. both the mayor and the city manager think that demand is elastic.

c. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is a. 0.36. b. 0.8. c. 5.3. d. 2.8.

d. 2.8.

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue? a. 0.4 b. 1 c. 0 d. 4

d. 4

Refer to Figure 5-4. Total revenue when the price is P1 is represented by a. areas A + B. b. area D. c. areas C + D. d. areas B + D.

d. areas B + D.

Goods with many close substitutes tend to have a. less elastic demands. b. price elasticities of demand that are unit elastic. c. income elasticities of demand that are negative. d. more elastic demands.

d. more elastic demands.

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

d. the quantity demanded changes as consumer income changes.

Demand is said to be inelastic if a. demand shifts only slightly when the price of the good changes. b. the price of the good responds only slightly to changes in demand. c. buyers respond substantially to changes in the price of the good. d. the quantity demanded changes only slightly when the price of the good changes.

d. the quantity demanded changes only slightly when the price of the good changes.