Exam 5: Elasticity: a Measure of Responsiveness

The demand for tobacco is price inelastic.Suppose there is a drought that destroys a large portion of the tobacco crop.What will happen in the market for tobacco? Will the equilibrium price and quantity change? If so,how? What will happen to the total revenue earned by tobacco farmers?

Assume that the price elasticity of demand for glass is 1.7 and the price elasticity of supply for glass is 0.8.If supply rises by 18%,the price of glass will:

The price elasticity of supply is measured by dividing the percentage change in quantity supplied by the percentage change in price.

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from point E to point F can be described as:

How does one determine whether supply is elastic or inelastic?

Clear Window Manufacturer wants to increase the quantity of windows it sells by 10%.If the price elasticity of demand is 5 the manufacturer must:

When Robert's income increases,he buys more new clothes.If the income elasticity is positive-indicating a positive relationship between his income and his demand-then new clothes are a normal good for Robert.

Comment on the following statement: "Elasticity is constant along a straight-line demand curve."

The price elasticity of demand for shirts is .75 and the price elasticity of supply of shirts is 2.5.If the supply of shirts rises by 10%,what will happen to the price of shirts?

Price elasticity of demand tends to be more elastic as you move down the linear demand curve.

A perfectly elastic demand curve is a horizontal line.

A game shop estimates that the price elasticity of demand on its newly released games is 2.0.In an effort to raise total revenue,the store should:

Additional Application The 2005-2006 Florida citrus harvest has been tallied and is over $1 billion.This is the highest dollar amount since the 1999-2000 season.This year's production was 3% greater than last year,which was dramatically reduced due to three hurricanes that struck the state last year.While the overall production increase was relatively small,the prices for all types of citrus increased significantly.On the wholesale level oranges alone realized a 56% price increase over the previous year after experiencing a 1.3% decrease from last year.One explanation of this increase was Hurricane Wilma striking Florida in October 2005 and causing a reduction in this year's supply of citrus.The higher citrus prices this year resulted in a 38% increase in revenues to growers over the previous year. How can the increased revenues to the citrus producers be explained? The law of demand states if the price increases,the quantity demanded decreases.The concept of price elasticity of demand explains that the percentage decrease in quantity demanded may be greater than or less than the percentage increase in price.Is the demand for citrus elastic or inelastic? "States citrus crop tops $1 billion for first time in six years." September 22,2006.palmbeachpost.com.Retrieved October 3,2006,from http://www.palmbeachpost.com -If the price of citrus rose and the revenues from citrus production increase,we know that the price elasticity of demand for citrus is:

Suppose that the price elasticity of demand for museum tickets is equal to 1.8.If the price of a museum ticket rises by 30 percent,what will happen to quantity demanded?

At a price of $4,a gas station.sold 100 gallons of gasoline per week.When the price rose to $4.5,only 80 gallons were sold per week.Using the initial-value method,the price elasticity of demand for gasoline at Greedy Inc.Gas Station is:

The concept of elasticity applies to:

The price elasticity of supply is generally greater than zero.

Billy's income elasticity of demand for ground beef is -0.5 and his income elasticity of demand for pork chops is 1.2.Is ground beef a normal or inferior good? Explain.What about pork chops?

If the supply curve is a vertical line,then supply is perfectly inelastic.

Maria raised the price of her burritos from $2.00 to $2.40 due to an increase on the price of cheese,one of the main ingredients.Her total revenue increased from $300 to $338.We can conclude that the demand for burritos is: