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Exam 5: Elasticity and Its Application

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Question 291

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Table 5-13 Consider the following demand schedule. -Refer to Table 5-13. Using the midpoint method, between which two prices is price elasticity of demand most inelastic?

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Question 292

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For which of the following types of goods would the income elasticity of demand be positive and relatively large?

A) all inferior goods
B) all normal goods
C) goods for which there are many complements
D) luxuries

E) None of the above
F) A) and C)

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Question 293

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Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

Figure 5-10 -Refer to Figure 5-10. Total revenue when the price is P2 is represented by the areas)

Use the graph shown to answer the following questions. Put the correct letters) in the blank. a. The elastic section of the graph is represented by section _______. b. The inelastic section of the graph is represented by section _______. c. The unit elastic section of the graph is represented by section . d. The portion of the graph in which a decrease in price would cause total revenue to fall would be _________. e. The portion of the graph in which a decrease in price would cause total revenue to rise would be _________. f. The portion of the graph in which a decrease in price would not cause a change in total revenue would be _________. g. The section of the graph in which total revenue would be at a maximum would be _______. h. The section of the graph in which elasticity is greater than 1 is . i. The section of the graph in which elasticity is equal to 1 is . j. The section of the graph in which elasticity is less than 1 is .

The demand for Godiva mint chocolates is likely quite elastic because

Suppose good X has a positive income elasticity of demand. This implies that good X could be i) a normal good. Ii) a necessity. Iii) an inferior good. Iv) a luxury.

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of corn.

If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

Suppose the price elasticity of demand for good A is 1.25. If the price of good A increases by 20%, what will be the resulting percentage change in quantity demanded for good A?

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

Table 5-10 -Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?

At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about

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

If the price elasticity of demand is equal to 1, then demand is unit elastic.

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.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

Table 5-6 -Refer to Table 5-6. As price rises from $10 to $15, the price elasticity of demand using the midpoint method is approximately

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price inelastic demand?