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Exam 5: Elasticity and Its Application

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Question 211

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Scenario 5-3 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 5-3.The equilibrium price will

A) increase in the milk market and increase in the beef market.
B) increase in the milk market and decrease in the beef market.
C) decrease in the milk market and increase in the beef market.
D) decrease in the milk market and decrease in the beef market.

E) B) and C)
F) All of the above

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Question 212

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If a firm is facing elastic demand,then the firm should decrease price to increase revenue.

A) True
B) False

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Question 213

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On a certain supply curve,one point is (quantity supplied = 200,price = $4.00) and another point is (quantity supplied = 250,price = $4.50) .Using the midpoint method,the price elasticity of supply is about

If the price of milk rises,when is the price elasticity of demand likely to be the lowest?

You own a small town movie theatre.You currently charge $5 per ticket for everyone who comes to your movies.Your friend who took an economics course in college tells you that there may be a way to increase your total revenue.Given the demand curves shown,answer the following questions. a.What is your current total revenue for both groups? b.The elasticity of demand is more elastic in which market? c.Which market has the more inelastic demand? d.What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic? e.What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic? f.Given the graphs and what your friend knows about economics,he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3.How much could you increase total revenue if you take his advice?

The difference between slope and elasticity is that

Figure 5-9 -Refer to Figure 5-9.If price increases from $10 to $15,total revenue will

If the price elasticity of demand for a good is 0.8,then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

Scenario 5-2 The supply of aged cheddar cheese is inelastic,and the supply of bread is elastic.Both goods are considered to be normal goods by a majority of consumers.Suppose that a large income tax increase decreases the demand for both goods by 10%. -Refer to Scenario 5-2.The equilibrium quantity will