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Exam 5: Elasticity and Its Application

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Question 31

True/False

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If the price elasticity of demand is elastic, reduced demand for a good will create a greater fall in revenue than the increase in revenue created by the increase in price.

A) True
B) False

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Question 32

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Suppose the price of product X is reduced from $16.00 to $12.00 and, as a result, the quantity of X demanded increases from 300 to 450. Using the midpoint method, the price elasticity of demand for X in the given price range is:

A) 1.40
B) 1.00
C) 0.40
D) 0.29

E) None of the above
F) A) and B)

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Question 33

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If the cross-price elasticity of demand is 1.25, then the two goods are:

Graph 5-3 -In Graph 5-3, as price falls from P_A to P_B, which demand curve is least elastic?

The demand for a good tends to be more elastic:

Suppose the price elasticity of demand for wine is 1.60. A 12 per cent decrease in price will result in:

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

How does the price elasticity of demand affect total revenue? In what case will a change in price cause no change in total revenue?

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?

A good experiences a shift of the demand curve so that it is now flatter than before. Suppose that the market price and quantity demanded does not change. This means that the good has now become inelastic.

The cross-price elasticity of demand measures how the quantity demanded of a good changes:

Demand is classed as price inelastic if the elasticity coefficient is:

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

Graph 5-2 -In Graph 5-2, the elasticity of demand from point B to point C, using the midpoint method, would be:

The main determinant of the price elasticity of supply is:

Graph 5-1 -In Graph 5-1, the point on the demand curve labelled B represents the:

Major Australian supermarket chains have been fighting to sell milk at the lowest price. The fact that they place such importance on the price must mean that they consider demand for milk to be somewhat price inelastic.

If the price elasticity of demand is 1.5, a price decrease will cause total revenue to increase.

A perfectly inelastic demand implies that buyers: