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Exam 5: Elasticity and Its Application

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Question 81

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Suppose the price elasticity of demand for a product is 0.5. If a supplier wants to increase revenue, what change should it make to price, if any?

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Question 82

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The demand for soap is more elastic than the demand for Dove soap.

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Question 83

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The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.

If the price of calculators increases by 15% and the quantity demanded per week falls by 45% as a result, then the price elasticity of demand is 3.

Suppose demand is given by the equation: Q^D = 50 - 5P Using the midpoint method, what is the price elasticity of demand between $7 and $8?

Scenario 5-4 ​ 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 5-6. Using the midpoint method, what is the income elasticity of demand for mobile service?

If the price elasticity of supply is 0.7, and a price increase led to a 4.2 percent increase in quantity supplied, then the price increase is about

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?

Supply tends to be more elastic in the short run and more inelastic in the long run.

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

If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the demand for chocolate is price elastic.

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 elastic demand?

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Normal goods have positive income elasticities of demand, while inferior goods have negative income elasticities of demand.

If two goods are complements, their cross-price elasticity will be

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

The flatter the demand curve that passes through a given point, the more elastic the demand.

Table 5-6 Consider the following demand schedule. $\begin{array} { | l | l | } \hline \text { Price } & \text { Quantity Demanded } \\\hline \$ 0 & 1,000 \\\hline \$ 3 & 800 \\\hline \$ 6 & 600 \\\hline \$ 9 & 400 \\\hline \$ 12 & 200 \\\hline \$ 15 & 0 \\\hline\end{array}$ -Refer to Table 5-6. Using the midpoint method, what is the price elasticity of demand between $12 and $15?

The price elasticity of supply measures how much