Question 1

When the price of digital SLR cameras was $2000, consumers bought 4000.When the price fell to $1200, consumers bought 5000.What was the price elasticity of demand between these two prices, calculated with the midpoint method? Is demand elastic or inelastic?

Accepted Answer

The answer of When the price of digital SLR cameras...

Question 2

Graph 5-5 -In Graph 5-5, which supply curve is most likely the long-run supply curve? A)S1 B)S₂ C)S3 D)all of the above are equally likely to be the long-run supply curve

Accepted Answer

The long-run supply curve represents the minimum point of the average cost curve, which is where the firm produces at maximum efficiency. In Graph 5-5, S3 is the only curve that intersects the lowest point of the average cost curve. Therefore, it is the most likely to be the long-run supply curve. S1 and S₂ intersect the average cost curve at higher points, which suggests that they represent less efficient production methods.

Question 3

List the following goods in order of increasing price elasticity of demand and explain why they are ranked that way: a first class ticket to your dream holiday destination, a two-day ferry cruise, a local bus ticket to work, hiring a sports car for a day.

Accepted Answer

The answer of List the following goods in order of...

Question 4

Suppose that you are in charge of pricing at a local surf rental shop.The business needs to increase revenue and your job is on the line.If the supply of surf boards is elastic, you:
A)should increase the rental price of surf boards
B)should decrease the rental price of surf boards
C)should not change the rental price of surf boards
D)cannot determine what to do with rental price until you determine whether demand is elastic or inelastic

Accepted Answer

The answer of Suppose that you are in charge of...

Question 5

A perfectly inelastic demand curve:
A)rises upward and to the right but has a constant slope
B)can be drawn as a line parallel to the vertical axis
C)cannot be shown on a two-dimensional graph
D)can be represented by a line parallel to the horizontal axis

Accepted Answer

A perfectly inelastic demand curve means that the quantity demanded does not vary with changes in price. This can be illustrated on a graph by drawing a vertical line parallel to the y-axis, indicating that no matter what the price is, the quantity demanded remains the same.

Question 6

Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand.If the producer's objective is to increase total revenue, she should:
A)increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand
B)decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand
C)charge the same price to both groups of customers
D)increase the price for both groups of customers

Accepted Answer

When the producer decreases the price charged to customers with the price elastic demand, the quantity demanded from this group will increase, resulting in an increase in total revenue. On the other hand, when the producer increases the price charged to customers with the price inelastic demand, the quantity demanded from this group will only decrease slightly, resulting in an increase in total revenue. Therefore, decreasing the price for price elastic demand customers and increasing the price for price inelastic demand customers will result in an increase in total revenue.

Question 7

What is elasticity and why do economists use the concept?

Accepted Answer

The answer of What is elasticity and why do economists...

Question 8

The price of product X is reduced from $45 to $20 and, as a result, the quantity demanded increases from 20 to 25 units.From this we can conclude that the demand for X in this price range:
A)has declined
B)is of unit elasticity
C)is inelastic
D)is elastic

Accepted Answer

The answer of The price of product X is reduced...

Question 9

If two demand curves with different slopes pass through the same point, which demand curve will have the greater price elasticity of demand if the price falls from that point?

Accepted Answer

The answer of If two demand curves with different slopes...

Question 10

Suppose a demand function yields an equilibrium price of $5.00 and an equilibrium quantity of 50 000 individual units.The equilibrium quantity could also be expressed in units of 1000, yielding an equilibrium of $5.00 and 50 units.How would expressing the quantity in units of 1000 affect the value of the slope and the elasticity?

Accepted Answer

The answer of Suppose a demand function yields an equilibrium...

Question 11

Graph 5-5 -In Graph 5-5, which supply curve is perfectly inelastic? A)S1 B)S₂ C)S3 D)it is impossible to tell without more information

Accepted Answer

The supply curve S1 is perfectly inelastic because it is a vertical line, indicating that producers are unable or unwilling to change the quantity supplied regardless of changes in price.

Question 12

Use the graphs below to answer the following questions.  
a.Determine equilibrium price and quantity for each graph.
b.Given demand and supply, what would total revenue be for each graph?
c.Assume that supply shifts to the left on both graphs by 100, raising price.Given the new equilibrium price and equilibrium quantity, what would total revenue be for each graph?
d.What do your answers to part c tell you about the relationship between elasticity of demand and total revenue?

Accepted Answer

The answer of Use the graphs below to answer the...

Question 13

Consider the following pairs of goods.Which would you expect to have the more elastic demand? Why?
a.water or diamonds
b.insulin or nasal decongestant spray
c.food in general or breakfast cereal
d.gasoline over the course of a week or gasoline over the course of a year
e.personal computers or IBM personal computers

Accepted Answer

The answer of Consider the following pairs of goods.Which would...

Question 14

Sketch three demand curves.Curve A should be perfectly elastic, curve B should be perfectly inelastic and curve C should be unit elastic.

Accepted Answer

The answer of Sketch three demand curves.Curve A should be...

Question 15

Supply curves tend to be:
A)perfectly elastic in the long run, because consumer demand will have sufficient time to adjust fully to changes in supply
B)more elastic in the long run, because there is time for firms to enter or leave the industry and to change the size of factories
C)perfectly inelastic in the long run, because the law of scarcity imposes absolute limits upon production
D)less elastic in the long run, because there is time for firms to enter or leave an industry

Accepted Answer

In the long run, firms have the ability to enter or leave an industry, as well as adjust the size of factories or production methods, allowing them to respond more effectively to changes in supply and demand. Therefore, supply curves tend to be more elastic in the long run.

Question 16

If an increase in the demand for Monet paintings increases their equilibrium price but not the equilibrium quantity, this means that:
A)the supply of Monet paintings is perfectly elastic
B)the supply of Monet paintings is perfectly inelastic
C)the price elasticity of demand for Monet paintings is perfectly elastic
D)the price elasticity of supply for Monet paintings is perfectly inelastic

Accepted Answer

The supply of Monet paintings is perfectly inelastic because the quantity of these paintings cannot be increased, no matter how much the price rises. This is because Monet is no longer alive to create more paintings, making the supply fixed.

Question 17

A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent, the:
A)more elastic the supply curve
B)larger the elasticity of demand
C)more elastic the demand for the product
D)more inelastic the demand for the product

Accepted Answer

When the demand for a product is more inelastic, it means that consumers are less responsive to changes in price. Therefore, even with a leftward shift in supply (indicating a decrease in the quantity supplied at each price level), the increase in equilibrium price will be greater, as consumers are still willing to pay a higher price for the product despite the decrease in quantity supplied.

Question 18

If the cross-price elasticity of demand between goods X and Y is 0.9 this means:
A)the two goods are complements and demand is elastic
B)the two goods are complements and the demand is inelastic
C)the two goods are substitutes and the demand is elastic
D)the two goods are substitutes and the demand is inelastic

Accepted Answer

A positive cross-price elasticity of demand indicates that the two goods are substitutes. A value of 0.9 suggests that the demand is inelastic, as it is less than 1.

Question 19

In which of the following cases will total revenue increase?
A)price falls and demand is inelastic
B)price falls and supply is elastic
C)price rises and demand is inelastic
D)price rises and demand is elastic

Accepted Answer

When price rises and demand is inelastic, total revenue increases because the increase in price is not proportionally met with a decrease in quantity demanded. Therefore, the increase in revenue from the higher price outweighs the decrease in revenue from the lower quantity demanded.

Question 20

In general, a firm will be able to generate the greatest response to a price increase:
A)just after the change
B)after three years
C)in the months following the change
D)around one week after the change

Accepted Answer

The answer of In general, a firm will be able...

Quiz 5: Elasticity and Its Application

When the price of digital SLR cameras was $2000, consumers bought 4000.When the price fell to $1200, consumers bought 5000.What was the price elasticity of demand between these two prices, calculated with the midpoint method? Is demand elastic or inelastic?

Graph 5-5 -In Graph 5-5, which supply curve is most likely the long-run supply curve?

List the following goods in order of increasing price elasticity of demand and explain why they are ranked that way: a first class ticket to your dream holiday destination, a two-day ferry cruise, a local bus ticket to work, hiring a sports car for a day.

Suppose that you are in charge of pricing at a local surf rental shop.The business needs to increase revenue and your job is on the line.If the supply of surf boards is elastic, you:

A perfectly inelastic demand curve:

Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand.If the producer's objective is to increase total revenue, she should:

What is elasticity and why do economists use the concept?

The price of product X is reduced from $45 to $20 and, as a result, the quantity demanded increases from 20 to 25 units.From this we can conclude that the demand for X in this price range:

If two demand curves with different slopes pass through the same point, which demand curve will have the greater price elasticity of demand if the price falls from that point?

Graph 5-5 -In Graph 5-5, which supply curve is perfectly inelastic?

Sketch three demand curves.Curve A should be perfectly elastic, curve B should be perfectly inelastic and curve C should be unit elastic.

Supply curves tend to be:

If an increase in the demand for Monet paintings increases their equilibrium price but not the equilibrium quantity, this means that:

A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent, the:

If the cross-price elasticity of demand between goods X and Y is 0.9 this means:

In which of the following cases will total revenue increase?

In general, a firm will be able to generate the greatest response to a price increase: