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Exam 5: Elasticity and Its Application

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Question 31

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If the cross-price elasticity of demand for two goods is -4.5, then

A) the two goods are substitutes.
B) the two goods are complements.
C) one of the goods is normal while the other good is inferior.
D) one of the goods is a luxury while the other good is a necessity.

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

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Question 32

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Demand is said to have unit elasticity if the price elasticity of demand is

A) less than 1.
B) greater than 1.
C) equal to 1.
D) equal to 0.

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

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Question 33

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If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

For which of the following goods is the income elasticity of demand likely lowest?

Refer to Figure 5-5. Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about

When consumers face rising gasoline prices, they typically

A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about

A key determinant of the price elasticity of supply is

Demand is inelastic if the price elasticity of demand is greater than 1.

When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of demand

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?

Scenario 5-3 Suppose 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 aged cheddar cheese could be

Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

Table 5-9 -Refer to Table 5-9. Which of the three supply curves represents the most elastic supply?

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price inelastic demand?

Which of the following is not a determinant of the price elasticity of demand for a good?

Suppose the price of gas increases by 20%. Will demand be more elastic if consumers have 3 weeks or 3 years to adjust to this price change?

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

Refer to Figure 5-5. At a price of $70 per unit, sellers' total revenue equals

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase by