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Exam 6: Demand and Elasticity

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Question 81

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If the demand for gasoline becomes more elastic over time,

A) the demand curve will shift out.
B) the demand curve will become flatter.
C) other things being equal, the equilibrium price of gasoline must fall.
D) other things being equal, the equilibrium quantity of gasoline must fall.

E) B) and C)
F) B) and D)

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Question 82

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What is an optimal decision?

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An optimal decision is one that best ser...

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Question 83

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A study of New York City (NYC) tax rates concluded that taxes on the nonmanufacturing sector should be higher since that sector has fewer alternatives.Manufacturers are more mobile and may move to avoid higher taxes.This means that

When the goods of competing companies are identical, consumers have no reason to prefer one product over the other so the demand curve for each manufacturer will be perfectly elastic.

A buyer's response to a change in income is an example of a "change in demand."

The price of coffee rose 50 percent and coffee sales fell 25 percent.Doughnut sales also fell 25 percent.From this information we can conclude that

The quantity demanded in a market depends on many things, but the concept of elasticity focuses on the effect of changes in the price of the good.

If an increase in quantity demanded of a product reduces the quantity demanded of another, then the two goods are said to be substitutes.

Figure 6-3 -In Figure 6-3(a) , at any price above $6, quantity demanded

Figure 6-2 -From Figure 6-2, we can infer that demand is ____ between P = 12 and P = 10 and ____ between P = 6 and P = 4.

If demand is inelastic, a drop in price will raise total expenditure.

Price elasticity of demand is defined as

Figure 6-5 -If the demand curve in Figure 6-5 is unit elastic, then total expenditure at A is ____ total expenditure at B.

Suppose that elasticity has been reliably measured as 1.55 and the unit price decreases from $20 to $17.50.How much will quantity demanded increase?

The price elasticity of demand for widgets at any particular price is determined by

If demand is unit elastic, then a 10 percent increase in the price will lead to a 10 percent increase in quantity demanded.

Sun City's public bus line has been operating at a deficit.The city decides to raise the fare from 50 cents to 75 cents, anticipating enough additional revenue to cover the deficit.What assumption is the city making about price elasticity?

How can one tell from cross elasticity what kind of relationship exists between any two goods?

Would a profit-maximizing firm sell at a price where demand is inelastic? Explain.

As one moves down a straight-line demand curve away from the vertical axis, demand becomes less elastic and then inelastic.