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Exam 5: Elasticity and Its Application

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Question 31

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The production of methamphetamine meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct?

A) Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth.
B) Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth.
C) Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth.
D) Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation Methbust would reduce the equilibrium quantity, whereas Say No would increase the equilibrium quantity of meth.

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

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Question 32

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

A) Market quantity supplied does not change when the price changes.
B) Supply is perfectly inelastic.
C) An increase in market demand will increase the equilibrium quantity.
D) An increase in market demand will increase the equilibrium price.

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

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Question 33

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-Refer to Table 5-12. Using the midpoint method, what is the price elasticity of demand between $6 and $8?

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

Suppose that an increase in the price of melons from $1.30 to $1.80 per pound increases the quantity of melons that melon farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what is the approximate value of the price elasticity of supply?

Suppose a market has the demand function Qd=20-0.5P. At which of the following prices will total revenue be maximized?

Table 5-4 The following table shows the demand schedule for a particular good. -Refer to Table 5-4. Using the midpoint method, when price rises from $8 to $12, the price elasticity of demand is

Figure 5-21 -Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $25 and $35?

Table 5-4 The following table shows the demand schedule for a particular good. -Refer to Table 5-4. Using the midpoint method, when price falls from $8 to $4, the price elasticity of demand is

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

Figure 5-8 -Refer to Figure 5-8. An increase in price from $10 to $15 would

For a good that is a necessity,

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would

Table 5-5 -Refer to Table 5-5. As price rises from $5 to $6, the price elasticity of demand using the midpoint method is approximately

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

If the price elasticity of supply is zero, then

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. Is a restaurant meal a normal or inferior good to the couple?

Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points B and C?

Scenario 5-5 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-5. The equilibrium quantity will

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?