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Exam 5: Elasticity and Its Application

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Question 141

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Which of the following statements is valid when supply is perfectly elastic at a price of $4?

A) The elasticity of supply approaches infinity.
B) The supply curve is vertical.
C) At a price below $4, quantity supplied is infinite.
D) At a price above $4, quantity supplied is zero.

E) None of the above
F) All of the above

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Question 142

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Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

A) steeper the demand curve will be.
B) flatter the demand curve will be.
C) further to the right the demand curve will sit.
D) closer to the vertical axis the demand curve will sit.

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

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Question 143

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Figure 5-2 -Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand?

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. 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?

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

For which of the following goods is the income elasticity of demand likely highest?

At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per day. At a price of $1.50, the paper manufacturer is willing to supply 175 spiral notebooks per day. Using the midpoint method, the price elasticity of supply is about

Holding all other factors constant and using the midpoint method, if a tractor manufacturer increases production from 80 to 100 units when price increases by 15 percent, then supply is

Figure 5-17 -Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point A and point B?

Figure 5-21 -If the quantity supplied is exactly the same regardless of the price, supply is

The flatter the demand curve that passes through a given point, the more inelastic the demand.

The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

There are fewer farmers in the United States today than 200 years ago because of

Figure 5-5 -Refer to Figure 5-5. Using the midpoint method, demand is unit elastic between prices of

Table 5-9 -Refer to Table 5-9. Along which of the supply curves does quantity supplied move proportionately more than the price?

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 is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

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

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about