Deck 5: Essay

Question 1

Suppose demand is given by the equation:
At what point along this demand curve will total revenue be maximized?

Answer 1

Total revenue is constant at $80 along this entire demand curve.

Question 2

Suppose that good X has few close substitutes and that good Y has many close substitutes.Which good would you expect to have more price elastic demand?

Answer 2

good Y

Question 3

What is the price elasticity of demand at any point on a perfectly elastic demand curve?

Answer 3

The price elasticity of demand is infinity.

Question 4

For which of the following goods would demand be most price elastic: a car,a sedan,a Honda sedan,a Honda Accord,a black Honda Accord?

Question 5

Suppose demand is given by the equation:
At what price will total revenue be maximized?

Question 6

Suppose that good X is a luxury and that good Y is a necessity.Which good would you expect to have more price inelastic demand?

Question 7

Suppose demand is given by the equation:
Using the midpoint method,what is the price elasticity of demand between $1 and $2?

Question 8

Suppose the price of natural gas,a typical fuel for heating homes,rises in January in Alaska.Would you expect the price elasticity of demand for natural gas to more inelastic immediately after the price increase or at some point in the future?

Question 9

Adam and Barb go to the store to purchase some lottery tickets.Without looking at the price,Adam says "I'll take 10 lottery tickets," and Barb says "I'll take $10 worth of lottery tickets." What is each person's price elasticity of demand for lottery tickets?

Question 10

What is the price elasticity of demand at any point on a perfectly inelastic demand curve?

Question 11

Suppose the price of gas increases by 20%.Will demand be more elastic if consumers have 3 weeks or 3 years to adjust to this price change?

Question 12

Suppose that good X has few close substitutes and that good Y has many close substitutes.Which good would you expect to have more price inelastic demand?

Question 13

Suppose that good X is a luxury and that good Y is a necessity.Which good would you expect to have more price elastic demand?

Question 14

The measure of how willing consumers are to buy less of a good as its price rises is called

Question 15

Suppose a market has the demand function Q^d=20-0.5P.Using the midpoint method,what is the price elasticity of demand between $30 and $40?

Question 16

Suppose demand is given by the equation:
Using the midpoint method,what is the price elasticity of demand between $1 and $2?

Question 17

Suppose demand is given by the equation:
Using the midpoint method,what is the price elasticity of demand between $7 and $8?

Question 18

Suppose a market has the demand function Q^d=20-0.5P.At what price will total revenue be maximized?

Question 19

Suppose the price elasticity of demand for good A is 1.25.If the price of good A increases by 20%,what will be the resulting percentage change in quantity demanded for good A?

Question 20

Suppose demand is given by the equation:
Using the midpoint method,what is the price elasticity of demand between $2 and $4?

Question 21

If the income elasticity of demand for a good is -1.40,is the good a normal or inferior good?

Question 22

Scenario 5-2
Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X,and is the price of good Y,which is related to good X.
Refer to Scenario 5-2.Using the midpoint method,if the price of good X is $10 and the price of good Y increases from $8 to $10,the cross price elasticity of demand is about

Question 23

Suppose the price elasticity of demand for a product is 0.5.If a supplier wants to increase revenue,what change should it make to price,if any?

Question 24

With regard to elasticity,if a firm has a longer time to adjust to a price increase,supply will be more

Question 25

In the short run,as compared to the long run,both the price elasticity of demand and the price elasticity of supply tend to be more

Question 26

If the cross-price elasticity of demand between two goods is negative,what is the relationship between the two goods?

Question 27

Scenario 5-6
Consider the markets for mobile and landline telephone service.Suppose that when the average income of residents of Plainville is $55,000 per year,the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000.Suppose that when the price of mobile service rises from $100 to $120 per month,the quantity demanded of landline service decreases to 11,000.Suppose also that when the average income increases to $60,000,the quantity demanded of mobile service increases to 33,000.
Refer to Scenario 5-6.Using the midpoint method,what is the cross price elasticity of demand for landline and mobile service?

Question 28

Figure 5-21
Refer to Figure 5-21.Using the midpoint method,what is the price elasticity of supply between $15 and $25?

Question 29

Scenario 5-2
Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X,and is the price of good Y,which is related to good X.
Refer to Scenario 5-2.Good X and Good Y are related as

Question 30

With regard to elasticity,as a firm nears its production capacity,supply becomes more

Question 31

Scenario 5-6
Consider the markets for mobile and landline telephone service.Suppose that when the average income of residents of Plainville is $55,000 per year,the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000.Suppose that when the price of mobile service rises from $100 to $120 per month,the quantity demanded of landline service decreases to 11,000.Suppose also that when the average income increases to $60,000,the quantity demanded of mobile service increases to 33,000.
Refer to Scenario 5-6.Using the midpoint method,what is the income elasticity of demand for mobile service?

Question 32

Suppose the price elasticity of demand for a product is 1.3.If a supplier wants to increase revenue,what change should it make to price,if any?

Question 33

Scenario 5-6
Consider the markets for mobile and landline telephone service.Suppose that when the average income of residents of Plainville is $55,000 per year,the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000.Suppose that when the price of mobile service rises from $100 to $120 per month,the quantity demanded of landline service decreases to 11,000.Suppose also that when the average income increases to $60,000,the quantity demanded of mobile service increases to 33,000.
Refer to Scenario 5-6.Considering the income elasticity,what type of good is mobile telephone service?

Question 34

Scenario 5-6
Consider the markets for mobile and landline telephone service.Suppose that when the average income of residents of Plainville is $55,000 per year,the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000.Suppose that when the price of mobile service rises from $100 to $120 per month,the quantity demanded of landline service decreases to 11,000.Suppose also that when the average income increases to $60,000,the quantity demanded of mobile service increases to 33,000.
Refer to Scenario 5-6.Considering the cross price elasticity of demand for mobile and landline telephone service,is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?

Question 35

If the income elasticity of demand for a good is 0.56,is the good a normal or inferior good?

Question 36

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

Question 37

If the cross-price elasticity of demand between two goods is positive,what is the relationship between the two goods?

Question 38

Suppose the price elasticity of demand for a product is 1.If a supplier wants to increase revenue,what change should it make to price,if any?

Question 39

Suppose you manage a baseball stadium.To pay the salary for a star player,you would like to increase the total revenue from ticket sales.Should you increase or decrease the price of a ticket to increase revenue? Explain.

Question 40

Scenario 5-2
Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X,and is the price of good Y,which is related to good X.
Refer to Scenario 5-2.Using the midpoint method,if the price of good Y is $10 and the price of good X decreases from $5 to $3,what is the price elasticity of demand for good X? Is the demand elastic,unitary elastic,or inelastic?

Question 41

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat.Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

Question 42

If a supply curve is perfectly horizontal,what is the value of the price elasticity of supply?

Question 43

Suppose a freeze in Florida significantly reduces the supply of oranges this year.As a result,would you expect the total revenue from the sale of orange juice to rise or fall? Explain.

Question 44

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?

Question 45

Recently,in Smalltown,the price of Twinkies fell from $0.80 to $0.70.As a result,the quantity demanded of Ho-Ho's decreased from 120 to 100.What would be the appropriate elasticity to compute? Using the midpoint method,compute this elasticity.What does your answer tell you?

Question 46

If the quantity supplied is exactly the same regardless of the price,supply is

Question 47

Consider the following pairs of goods.For which of the two goods would you expect the demand to be more price elastic? Why?
a.water or diamonds
b.insulin or nasal decongestant spray
c.food in general or breakfast cereal
d.gasoline over the course of a week or gasoline over the course of a year
e.personal computers or IBM personal computers

Question 48

Figure 5-21
Refer to Figure 5-21.Using the midpoint method,what is the price elasticity of supply between $5 and $15?

Question 49

If a supply curve is perfectly vertical,what is the value of the price elasticity of supply?