econ ch5&6

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At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per day. At a price of $1.50, the paper manufacturer is willing to supply 175 spiral notebooks per day. Using the midpoint method, the price elasticity of supply is about

0.85

A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about

1.63

Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

A technological advance makes cellular phone production less expensive.

A price floor will be binding only if it is set

above the equilibrium price.

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by

between $0.50 and $1.

If the cross-price elasticity of two goods is negative, then the two goods are

complements

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to Scenario 5-2. The equilibrium price will

decrease in both the aged cheddar cheese and bread markets.

Refer to Figure 5-1. Between point A and point B on the graph, demand is

elastic, but not perfectly elastic.

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-3. The equilibrium price will

increase in both the milk and beef markets.

Refer to Figure 5-11. If the price falls from point A to point B, total revenue

increases, and demand is price elastic

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by

less than $0.50.

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

lower both price and total revenues.

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

positive, and the good is a normal good.

A tax imposed on the buyers of a good will

raise the price buyers pay and lower the effective price sellers receive.

Buyers of a good bear the larger share of the tax burden when the

supply is more elastic than the demand for the product.

If a tax is levied on the sellers of a product, then there will be a(n)

upward shift of the supply curve.


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