Exam 19: Elasticity

The producer of good X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price elasticity of demand for good X is 0.75. Your best advice to the producer would be to

The price elasticity of demand tends to be higher for goods

Vernon spends the following percentages of his budget on the goods A, B, C, and D: 23 percent on good A, 11 percent on good B, 1 percent on good C, and 3 percent on good D. For which good is price elasticity of demand the highest, ceteris paribus?

The quantity demanded of good A changes from 100 to 111 when the price of good A changes from $9 to $8. The cross elasticity of demand is

Exhibit 19-2 ​ -Refer to Exhibit 19-2. The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X as shown by the shift of S₁ to S₂. What is an expression for the tax revenue raised?

If demand for a given good is perfectly elastic, it follows that

If the percentage change in quantity demanded of a good is equal to the percentage change in buyer's income, then the good is said to be

If a small increase in the price of a good reduces quantity demanded to zero, demand is ________________ and the price elasticity of demand is equal to _______________.

If the demand for a good is unit elastic, then

Describe what cross elasticity of demand measures. Be specific in your response.

Assume that the buyers of good Z fall into two groups: buyers that have elastic demand and buyers that have inelastic demand. If the firm selling good Z can charge different prices to different groups of people, the firm would prefer to ______________ the price charged to the elastic group and _______________ the price charged to the inelastic group.

If good Z has an income elasticity of 1.0, then demand for good Z is income __________ and the good is __________.

A good is unit elastic in demand if as the price changes there is no resulting change in total revenue.

Income elasticity of demand for good A is -0.22. Good A is income __________ and is a(n) __________ good.

Exhibit 19-3 -Refer to Exhibit 19-3. When price decreases from $5.50 to $4.50, the price elasticity of demand is

If total revenue does not change as a result of a rise in the price of a given good, it follows that demand is

If demand is __________, price and total revenue are __________ related; if demand is __________, price and total revenue are directly related.

Good Z is income unit elastic. This means that the percentage change in income is

When a good is perfectly inelastic in demand, or perfectly elastic in supply, the buyers will pay the full tax that is placed on the sellers.

Exhibit 19-4 ​ -Refer to Exhibit 19-4. As a consequence of the depicted change in the supply of X, the demand curve for Y shifted from D₁ to D₂. It follows that