Question 1

During a recession when people's incomes drop, grocery chains experience much smaller declines in sales than do upscale department stores. Explain this phenomenon using the concept of elasticity.

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Question 2

If the price of a magazine increases from $5 to $7 and the quantity demanded of the magazines decreases from 10 million per month to 8 million per month, using the midpoint method, what is the price elasticity of demand? Show your work. Is the demand elastic, inelastic, or unit elastic?

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Question 3

What kind of elasticity is relevant when you are trying to figure out how a price cut by the burger shop next door will affect the demand for your pizza? Explain.

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Question 4

Water is considered a necessity. So, is the demand for water elastic or inelastic?

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Question 5

Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.

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Question 6

Joe's monthly income increases from $1,000 to $2,000. As a result, he decreases the number of his fast food meals from 20 to 5 per month. To Joe, are fast-food meals a normal or an inferior good? What kind of elasticity can tell the answer? Explain.

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Question 7

Studies have shown that the price elasticity of demand for necessities, such as food, are higher in developing countries and lower in developed countries. What is the reason for this difference in elasticity?

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Question 8

Suppose the price elasticity of demand for bouquets of flowers is 4.0. You are charging $8 per bouquet. If you want to increase the quantity of bouquets you sell by 20 percent, what price should you charge?

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Question 9

The income elasticity of demand for store brands of soda (that is, non-name brands) is negative. What does this fact indicate about consumers' perceptions about the store brands?

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Question 10

Is there any set of relationships between price elasticity of supply and total revenue similar to the relationships between price elasticity of demand and total revenue?

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Question 11

Explain why the availability of resources affects the elasticity of supply.

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Question 12

Suppose the price of flour increases from $0.80 to $1.00 a pound and the quantity demanded decreases from 100 pounds to 95 pounds. Using the midpoint method, what is the price elasticity of demand for flour? Is the demand for flour elastic or inelastic?

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Question 13

If cable TV subscriptions and movie rentals are substitutes for each other, what is the effect in each of these markets of an increase in wages for people who work for the cable TV company? Use your analysis to determine the sign of the cross elasticity of demand between the quantity of movie rentals and the price of cable TV.

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Question 14

If addiction makes cigarettes such a necessity, is it correct to think that cigarettes are perfectly inelastic in both supply and demand.

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Question 15

What is the price elasticity of supply? List and briefly define three cases of the price elasticity of supply.

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Question 16

If the price of suntan lotion increases from $6 to $8 per bottle and quantity demanded decreases from 900,000 bottles to 845,000 bottles, using the midpoint method, what is the price elasticity of demand for suntan lotion?

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Question 17

How are the cross elasticity of demand and income elasticity of demand similar and how are they different from the price elasticity of demand?

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Question 18

When the price of a movie ticket falls from $14 to $10, the quantity of tickets demanded increases from 500 to 700 a day. What is the price elasticity of demand for movie tickets? (Use the midpoint method.)

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Question 19

The price elasticity of demand is always positive, as is the price elasticity of supply. Is the cross elasticity of demand always positive? Explain your answer.

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Question 20

"The number of substitutes available affects the price elasticity of demand for a good. So one way to know if apples and oranges are substitutes for each other is to look at the price elasticity of demand for each." Comment on this assertion.

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Quiz 4: Elasticity