Download Econ 100, Fall 2014 Exercise Set 5 ELASTICITY A decrease in

Econ 100, Fall 2014
Exercise Set 5
ELASTICITY
A decrease in supply will cause the largest increase in price when
a.
both supply and demand are inelastic.
b.
both supply and demand are elastic.
c.
demand is elastic and supply is inelastic.
d.
demand is inelastic and supply is elastic.
Economists compute the price elasticity of demand as the
a.
percentage change in price divided by the percentage change in quantity demanded.
b.
change in quantity demanded divided by the change in the price.
c.
percentage change in quantity demanded divided by the percentage change in price.
d.
percentage change in quantity demanded divided by the percentage change in income.
Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she
needs. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you
know that the demand for lemonade is elastic, what is your advice to her?
a.
Leave the price at 25 cents and be patient.
b.
Raise the price to increase total revenue.
c.
Lower the price to increase total revenue.
d.
There isn’t enough information given to answer this question.
The price elasticity of demand for water is generally estimated to be about
a.
-2.00
b.
-1.00
c.
-0.50
d.
0
Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of corn
is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true?
a.
The demand for corn is income inelastic, and so an increase in the price of corn will increase the total
revenue of corn farmers.
b.
The demand for corn is income elastic, and so an increase in the price of corn will increase the total
revenue of corn farmers.
c.
The demand for corn is price inelastic, and so an increase in the price of corn will increase the total
revenue of corn farmers.
d.
The demand for corn is price elastic, and so an increase in the price of corn will increase the total revenue
of corn farmers.
When the rental price of DVD movies is $4, Denise rents five per month. When the price is $3, she rents nine per
month. Denise’s demand for DVD rentals at P = $4 is
a.
elastic and her demand curve would be relatively flat.
b.
elastic and her demand curve would be relatively steep.
c.
inelastic and her demand curve would be relatively flat.
d.
inelastic and her demand curve would be relatively steep.
Which of the following is not a determinant of the price elasticity of demand for a good?
a.
the time horizon
b.
the steepness or flatness of the supply curve for the good
c.
the definition of the market for the good
d.
the availability of substitutes for the good
Other things equal, the demand for a good tends to be more inelastic, the
a.
fewer the available substitutes.
b.
longer the time period considered.
c.
more the good is considered a luxury good.
d.
more narrowly defined is the market for the good.
Suppose that the price elasticity of supply of home cleaners is 1.5. If the price of home cleaners rises 5 per cent,
the quantity supplied of home cleaners will
a. decline 7.5 per cent.
b. rise 7.5 per cent.
c. rise 1.5 per cent.
d. rise 0.3 per cent.
Refer to the figure on the right. In this diagram, the
price elasticity of supply at point B is
a. 1.5
b. 0.33
c. 0.66
d. 1.33
Refer to the figure on the right. In this diagram, the
price elasticity of supply at P = €150 is
a. 1.5
b. 0.33
c. 0.66
d. 3.33
The government increases the tax on petrol to raise additional tax revenue. The tax will result in the greatest
amount of tax revenue if the price elasticity of demand for petrol is
a. 1.8
b. 1.4
c. 1.0
d. 0.5
Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are
given as follows. Assume that both demand and supply are linear.
Price
($)
60
80
100
120
Quantity demanded
(millions)
22
20
18
16
Quantity supplied
(millions)
14
16
18
20
a. Calculate the price elasticity of demand at the equilibrium price.
b. Calculate the price elasticity of supply at the equilibrium price.
According to econometric estimates, the income elasticity of demand for automobiles in the United States of
America is between 2.5 and 3.9. If average income rises by 5 percent, what effect will this have on the quantity of
autos demanded?
Rank the following according to elasticity from most elastic to least elastic demand: demand for red meat,
demand for food, demand for lamb chops [kuzu pirzola].
Refer to Figure on the right. Starting at P = $12, if we decrease price by 1%,
a.
total revenue will increase and demand is elastic at P = $18.
b.
total revenue will increase and demand is inelastic at P = $12.
c.
total revenue will decrease and demand is inelastic at P = 12.
d.
total revenue will decrease and demand is elastic At P = $12.
Refer to Figure on the right. Sellers’ total revenue will
increase if the price is
a.
increased from $4 to $6.
b.
increased from $16 to $18.
c.
decreased from $8 to $6.
d.
All of the above are correct.
Refer to Figure on the right. Sellers’ total revenue will
increase if the price is
a.
increased from $6 to $8.
b.
decreased from $18 to $16.
c.
decreased from $16 to $15.
d.
All of the above are correct.