Homework 3

If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is

1.33

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

2.2

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

2.8

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded.

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue?

4

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

A is a luxury and B is a necessity.

Refer to Figure 5-4. Total revenue when the price is P1 is represented by

areas B + D

A decrease in supply will cause the largest increase in price when

both supply and demand are inelastic

Refer to Figure 5-5. If the price decreased from $36 to $12, total revenue would

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

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be

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

inelastic

The supply of a good will be more elastic, the

longer the time period being considered.

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

complements

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.

Goods with many close substitutes tend to have

more elastic demands

For which pairs of goods is the cross-price elasticity most likely to be positive?

pens and pencils

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

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

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

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

Demand is said to be inelastic if

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