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Exam 5: Elasticity and Its Application

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Question 141

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A tax accounting firm produces 500 tax returns units when the market price is $150 per return and produces 700 tax returns when the market price is $170 per tax return. Using the midpoint method, for this range of prices, the price elasticity of supply is about

A) 2.67.
B) 0.67.
C) 0.4.
D) 0.125.

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

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Question 142

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If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a

A) 0.4 percent increase in the quantity demanded.
B) 2.5 percent increase in the quantity demanded.
C) 3.6 percent increase in the quantity demanded.
D) 6 percent increase in the quantity demanded.

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

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Question 143

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

Figure 5-21 -Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $5 and $15?

Which of the following is likely to have the most price inelastic demand?

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of

Figure 5-1 -Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

If the price elasticity of supply for a good is equal to infinity, then the

How does total revenue change as one moves downward and to the right along a linear demand curve?

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

Which of the following statements is correct?

Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points C and D?

If the cross-price elasticity of two goods is positive, then the two goods are

The smaller the price elasticity of demand, the

Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is

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 bread could be

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. Using the midpoint method, what is the cross price elasticity of demand for landline and mobile service?