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Exam 5: Elasticity and Its Application

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Question 61

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Figure 5-4 -Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P= $15) and (Q = 2,400, P = $12) . Then which of the following scenarios is possible?

A) Both of these points lie on section BC of the demand curve.
B) The vertical intercept of the demand curve is the point (Q = 0, P = $22) .
C) The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0) .
D) Any of these scenarios is possible.

E) A) and C)
F) A) and B)

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Question 62

Multiple Choice

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Figure 5-1 -Refer to Figure 5-1. Between point A and point B, the slope is equal to

A) -1/4, and the price elasticity of demand is equal to 2/3.
B) -1/4, and the price elasticity of demand is equal to 3/2.
C) -3/2, and the price elasticity of demand is equal to 1/4.
D) -2/3, and the price elasticity of demand is equal to 3/2.

E) B) and D)
F) B) and C)

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Question 63

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Figure 5-4 -Refer to Figure 5-4. If the price increases in the region of the demand curve between points A and B, we can expect total revenue to

Figure 5-17 -Refer to Figure 5-17. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

Josh mows lawns. If the demand for lawn-mowing service is elastic and Josh wants to increase his total revenue, he should

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price inelastic.

Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the short run?

Scenario 5-8 Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000. -Refer to Scenario 5-8. Considering the cross price elasticity of demand for mobile and landline telephone service, is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

In which of the following situations will total revenue increase?

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

A perfectly elastic demand implies that

The value of the price elasticity of demand for a good will be relatively large when

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of

Suppose the price elasticity of demand for a product is 1.3. If a supplier wants to increase revenue, what change should it make to price, if any?

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is

Figure 5-21 -Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $5 and $15?

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

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

As we move downward and to the right along a linear, downward-sloping demand curve,