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Exam 5: Elasticity and Its Application

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Question 31

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Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

A) True
B) False

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Question 32

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

A) positive.
B) negative.
C) zero.
D) equal to the difference between the income elasticities of demand for the two goods.

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

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Question 33

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

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

If the price elasticity of demand for apples is 0.8, then a 2.4% increase in the price of apples will decrease the quantity demanded of apples by

If the quantity supplied is exactly the same regardless of the price, supply is

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

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

OPEC has coordinated a reduction in supply that was

For a particular good, an 8 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

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

Table 5-2 -Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the price elasticity of demand is

The cross-price elasticity of demand can tell us whether goods are

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?

Scenario 5-3 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 equilibrium quantity will

Figure 5-1 -Refer to Figure 5-1. Between point A and point B on the graph, demand is

Scenario 5-6 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. 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 is used to determine whether goods are substitutes or complements.

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

The price elasticity of demand for bread is