Exam 5: Elasticity and Its Application

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

Figure 5-11 -Refer to Figure 5-11. Suppose this demand curve is a straight, downward-sloping line all the way from the horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that (i) demand is elastic and (ii) a decrease in price from P1 to P2 causes an decrease in total revenue?

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

The demand for Godiva mint chocolates is likely quite elastic because

A key determinant of the price elasticity of supply is the

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

Which of the following statements is not valid when the market supply curve is vertical?

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Demand is said to be inelastic if the

Scenario 5-1 Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. -Refer to Scenario 5-1. What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs?

If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the demand for chocolate is price elastic.

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni

When demand is perfectly inelastic, the demand curve will be

If the price elasticity of supply for a good is equal to infinity, then the

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

Suppose a market has the demand function Qd=20-0.5P. Between which of the following price ranges is demand most inelastic?

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

Figure 5-10 -Refer to Figure 5-10. If rectangle D is larger than rectangle A, then

The price elasticity of demand for bread