UH Spring 2015 ECON 2304 Chapter 4

Which of the following has a more elastic supply in the short run? a. Hospitals or mobile clinics? b. Purebred dogs or pet rabbits? c. On-campus courses or online courses?

a). Mobile Clinics b). Pet Rabbits c). Online Courses

You are working as a private math tutor to raise money during spring break. The price elasticity of demand for math tutoring might be elastic because: The price elasticity of demand for math tutoring might be inelastic because:

(elastic) the break provides students with more time to look for a substitute tutor. (inelastic) students may need to use the limited break time to catch up on work.

Suppose that when the price of peanut butter rises from $3 to $4 per jar, the quantity of jelly purchased rises from 12 million jars to 15 million jars. The cross-price elasticity of demand between peanut butter and jelly using the midpoint method is___________ and the goods are (substitutes/complements?)

0.78 Complements

If the price of a haircut is $12, the number of haircuts provided is 100. If the price rises to $25 per haircut, barbers will work much longer hours, and the supply of haircuts will increase to 300. The price elasticity of supply for haircuts between $12 and $25 using the mid-point method is ________

1.42

If the price elasticity of demand for used cars priced between $3,000 and $5,000 is -1.4 (using the mid-point method), what will be the percent change in quantity demanded when the price of a used car falls from $5,000 to $3,000?

70% Explanation: -1.4 = % change in Qd/[(3,000 − 5,000)/(3,000 + 5,000)/2)] -1.4 = % change in Qd/-0.5 (-0.5) × -1.4 = % change in Qd 0.7 × 100 = % change in Qd 70 percent = % change in Qd

If price elasticity of demand is -0.5 and price increases by 2 percent, quantity demanded will decrease by _________.

< 2 percent

If price increases by 10 percent and quantity demanded decreases by 12 percent, demand is _________.

Elastic

If price elasticity of supply is 1.3 and price increases by 1 percent, quantity supplied will ___________ by ___________

Increase by 1.3%

If price decreases by 10 percent and quantity supplied decreases by 5 percent, supply is

Inelastic

Refer to the demand schedule below: Price ($) Quantity demanded 80 --- 0 70 --- 50 60 --- 100 50 --- 150 40 --- 200 30 --- 250 20 --- 300 10 --- 350 0 --- 400 Price increases from $10 to $20. Demand is _________ and total revenue _________ .

Inelastic --- Increases

Which of the following has a more elastic demand in the short run? a. Pomegranate juice or drinking water: b. Cereal or Rice Krispies cereal: c. Speedboats or gourmet chocolate:

Pomegranate Juice Rice Krispies Speedboats

When the price of a bar of chocolate is $1.00, demand is 100,000 bars. When the price rises to $1.50, demand falls to 60,000 bars. Calculate the price elasticity of demand according to the instructions below. 1). Suppose price increases from $1.00 to $1.50. 2). Suppose price decreases from $1.50 to $1.00. 3). Suppose the price increases from $1.00 to $1.50. 4). Suppose the price decreases from $1.50 to $1.00.

Rounded to two places with no minus sign 1). The price elasticity of demand in terms of percentage change is 0.80 2). The price elasticity of demand in terms of percentage change is 2.03 3). The price elasticity of demand using the mid-point method is 1.25 4). The price elasticity of demand using the mid-point method is 1.25

Consider two markets: real estate in downtown Manhattan or real estate in rural Oklahoma. Which will have a more price-elastic supply over six months?

Rural Oklahoma because the supply can change more easily

You have noticed that the price of tickets to your university's basketball games keeps increasing but the supply of tickets remains the same. Supply might be unresponsive to changes in price because:

there a fixed number of stadium seats.

For each of the following pairs, predict whether the cross-price elasticity of demand will be positive or negative: a). Soap and Hand Sanitizer b). CDs and Mp3s c). Sheets and Pillowcases

a). Positive b). Positive c). Negative

You have been hired by the government of Kenya, which produces a lot of coffee, to examine the supply of gourmet coffee beans. Suppose you discover that the price elasticity of supply is 0.85. When you share your information with the Kenyan government, you explain that a price elasticity of supply is 0.85 means that:

if the price rises by 1%, the quantity supplied will increase by .85%.

Certain skilled labor, such as hair cutting, requires licensing or certification. This is costly and takes a long time to acquire. If this licensing requirement were removed, the price elasticity of supply for haircuts would:

increase, or become more elastic because more people could enter the occupation.

Consider two goods: chips and guacamole. These two goods can be expected to have a:

negative cross-price elasticity so that if the price of chips increases, the demand for guacamole will decrease.

Consider the market for inexpensive hot dogs. You can expect that the income elasticity of demand would be:

negative since people buy fewer hot dogs as their incomes increase.

You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. You tell him that elasticity should be measured in percentage terms rather than in terms of dollars and cups because when using percentages, the elasticity measure is:

not dependent on the measure (cups, ounces, etc.) correct

Although we could describe both the cross-price elasticity of demand between paper coffee cups and plastic coffee lids and the cross-price elasticity of demand between sugar and artificial sweeteners as highly elastic, the first cross-price elasticity is negative and the second is positive. This is because:

paper coffee cups and plastic coffee lids are strong complements and sugar and artificial sweeteners are strong substitutes.

Consider two goods: brownies and cupcakes. These two goods can be expected to have a:

positive cross-price elasticity, so that if the price of brownies increases, the demand for cupcakes will also increase.

Consider the market for meals at fine dining restaurants. You can expect that the income elasticity of demand would be:

positive since people eat out more as their income increases.

You are working as a private math tutor to raise money during spring break. Assuming you want to raise as much money as possible, you should:

raise your price if you think demand is inelastic.

In France, cheese is an important and traditional part of people's meals. The French eat about six times more cheese per person as is consumed in the United States. The demand for cheese can be expected to be more income-elastic in:

the United States because the French will eat cheese regardless of income changes.

You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. You tell him he should measure elasticity by using the mid-point method in his calculations because the mid-point method will provide:

the same information whether the price rises or falls.