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Exam 5: Elasticity and Its Application

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Question 111

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In general, demand curves for luxuries tend to be price elastic.

A) True
B) False

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Question 112

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If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

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B) False

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Question 113

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Scenario 5-3 ​ Suppose the demand function for good X is given by: $Q _ { d x } = 15 - 0.5 P _ { x } - 0.8 P _ { y }$ where $Q _ { d x }$ is the quantity demanded of good X, $P _ { x }$ is the price of good X, and $P _ { y }$ is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is $10 and the price of good Y increases from $8 to $10, the cross price elasticity of demand is about

Suppose a market has the demand function Q^d=20-0.5P. Using the midpoint method, what is the price elasticity of demand between $30 and $40?

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

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

What is the price elasticity of demand at any point on a perfectly inelastic demand curve?

Table 5-5 ​ ​ $\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity Demanded } \\\hline \$ 0 & 50 \\\hline \$ 2 & 40 \\\hline \$ 4 & 30 \\\hline \$ 6 & 20 \\\hline 48 & 10 \\\hline\end{array}$ -Refer to Table 5-5. Using the midpoint method, what is the price elasticity of demand between $2 and $4?

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat. Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

If the income elasticity of demand for a good is 0.56, is the good a normal or inferior good?

If the cross-price elasticity of demand between two goods is positive, what is the relationship between the two goods?

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?

The demand for grape-flavored Hubba Bubba bubble gum is likely

Figure 5-2 ​ -Refer to Figure 5-2. The section of the demand curve at point B represents the

Figure 5-5 -Refer to Figure 5-5. Using the midpoint method, the price elasticity of demand between point X and point Y is

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

If a 9 percent increase in price for a good results in an 8 percent decrease in quantity demanded, the price elasticity of demand is

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

Suppose a market has the demand function Q^d=20-0.5P. At what price will total revenue be maximized?