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Exam 5: Elasticity and Its Application

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Question 191

Multiple Choice

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Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

A) unit elastic.
B) inelastic.
C) elastic.
D) None of the above is correct because a price decrease never leads to an decrease in total revenue.

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

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Question 192

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A key determinant of the price elasticity of supply is

A) the ability of sellers to change the price of the good they produce.
B) the ability of sellers to change the amount of the good they produce.
C) how responsive buyers are to changes in sellers' prices.
D) the slope of the demand curve.

E) All of the above
F) B) and D)

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Question 193

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Figure 5-8 -Refer to Figure 5-8. An increase in price from $15 to $20 would

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct?

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the

When studying how some event or policy affects a market, elasticity provides information on the

If the demand for bananas is elastic, then an increase in the price of bananas will

Suppose demand is given by the equation: Using the midpoint method, what is the price elasticity of demand between $2 and $4?

Figure 5-3 -Refer to Figure 5-3. Which demand curve is unit elastic?

Table 5-10 ​ ​ ​ -Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most inelastic price elasticity of supply?

Suppose you manage a baseball stadium. To pay the salary for a star player, you would like to increase the total revenue from ticket sales. Should you increase or decrease the price of a ticket to increase revenue? Explain.

Figure 5-5 -Refer to Figure 5-5. At a price of $50 per unit, sellers' total revenue equals

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

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

Moving downward and to the right along a linear demand curve, we know that total revenue

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 inelastic demand?

The price elasticity of supply measures how much

If the price elasticity of supply is 0.4, and a price increase led to a 5% increase in quantity supplied, then the price increase is about

Scenario 5-1 Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. -Refer to Scenario 5-1. Using the midpoint method, the cross price elasticity of demand is

Figure 5-3 -Refer to Figure 5-3. Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna's demand for gas is represented by demand curve