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Exam 5: Elasticity and Its Application

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

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Scenario 5-3 ​ Suppose the demand function for good X is given by: $Q _ { d x } = 15 - 0.5 P _ { x } - 0.8 P _ { y }$ where $Q _ { d x }$ is the quantity demanded of good X, $P _ { x }$ is the price of good X, and $P _ { y }$ is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good Y is $10 and the price of good X decreases from $5 to $3, what is the price elasticity of demand for good X? Is the demand elastic, unitary elastic, or inelastic?

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Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to changes in prices or income.

Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

Figure 5-6 ​ -Refer to Figure 5-6. Along which of these segments of the supply curve is supply least elastic?

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

Table 5-2 ​ $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Price } \\\text { (Dollars per unit) }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { (Units) }\end{array} \\\hline 100 & 0 \\\hline 80 & 50 \\\hline 60 & 100 \\\hline 40 & 150 \\\hline 20 & 200 \\\hline 0 & 250 \\\hline\end{array}$ -Refer to Table 5-2. Using the midpoint method, if the price falls from $80 to $60, the absolute value of the price elasticity of demand is

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

If the income elasticity of demand for a good is negative, then the good must be an inferior good.

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic? ​

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15 percent, then the quantity supplied of cheese will increase by

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.

In the short run, as compared to the long run, both the price elasticity of demand and the price elasticity of supply tend to be more

Suppose demand is given by the equation: Q^D = 80/P Using the midpoint method, what is the price elasticity of demand between $1 and $2?

If we observe that when a consumer's income rises by 10%, the quantity demanded of chocolate candy bars increases by 15%, then chocolate candy bars are are a normal good for that consumer.

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?

Table 5-5 ​ ​ $\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity Demanded } \\\hline \$ 0 & 50 \\\hline \$ 2 & 40 \\\hline \$ 4 & 30 \\\hline \$ 6 & 20 \\\hline 48 & 10 \\\hline\end{array}$ -Refer to Table 5-5. Using the midpoint method, what is the price elasticity of demand between $6 and $8?

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

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

Suppose demand is given by the equation: Q^D = 50 - 5P At what price will total revenue be maximized?