ECON 2106 Chapter 5
Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is
-1.0 and X and Y are complements
Figure 5-14 Using the midpoint method, what is the price elasticity of supply between $100 and $220
0.58
Table 5-4 Using the midpoint method, when prices rise from $8 to $12, the price elasticity of demand is
1
When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is
1
Table 5-7 Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?
1.00
Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about
1.43, and increase in the price will cause the hotels' total revenue to decrease
uppose that 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 5-3. The price elasticity of supply for bread could be
1.5
Heath's income elasticity of demand for concerts is 2. All else in equal, this means if his income increases by 10 percent, he will purchase tickets for
20 percent more concerts
The federal government is concerned about the negative effects of cigarette smoking in the United States. Suppose Congress is considering two plans. One plan would limit the production of cigarettes. The other would require manufacturers to include graphic photos on cigarette packages of people suffering cancer's effects. Which of the following statements is true?
Both programs would reduce the quantity of cigarettes sold
Which of the following statements about the consumers' responses to rising gasolines prices is correct?
Consumers decrease their quantity demanded more in the long run than the short run
Which of the following statements about agriculture in the US is correct
Increasing the supply of agricultural products typically benefits consumers but harms farmers
Which of the following statements is valid when the market supply curve is vertical
Market quantity supplied does not change when the price changes
Table 5-11 Which scenario describes the market for oil in the short run in comparison to the long run?
Scenario D describes the short run, whereas scenario a describes the long run
For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The relevant time horizon is short
When demand is elastic, an increase in price will cause
a decrease in total revenue
Suppose good X has a negative income elasticity of demand. This implies that good X is
an inferior good
Demand is said to be unit elastic if quantity demanded
changes by the same percent as the price
Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should
decrease the price of ice cream
If the demand for bananas is elastic then an increase in the price of bananas will
decrease total revenue of banana sellers
When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is
elastic, and her demand curve would be relatively flat
Demand is elastic if the price elasticity of demand is
greater than 1
The flatter the demand curve through a given point, the
greater the price elasticity of demand at that point
The case of perfectly elastic demand is illustrated by a demand curve that is
horizontal
If price increases from $10 to $20, total revenue will
increase by $120, so demand must be inelastic in this price range
If the price elasticity of supply ins 1,2, and price increased by 5% quantity would
increase by 6%
If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
inelastic
Figure 5-13 Between point A and B on the graph, demand is
inelestic
The price elasticity of demand of bread is
influences by whether consumers view bread as a necessity or luxury
When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni
is an inferior good with and income elasticity of -1 and soy-burgers are normal good with and income elasticity of 1
Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is
price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers
The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should
raise the price of cinnamon rolls
Which of the following is likely yo have the most price elastic demand
sailboats
Which of the following is likely to have the most price inelastic demand
salt
As we move downward and to the right along a linear, downward-sloping demand curve
slope remains constant but elasticity changes
Which of the following statements is valid when supply is perfectly elastic at a price of $4?
the elasticity of supply approaches infinity
A manufacturer produces 1000 units, regardless of market price. For the firm, the price elasticity of supply is
zero
