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1376 Elasticity and Its Application
7.
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?
8.
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?
Elasticity and Its Application 1377
Table
5-12
Price
Quantity Demanded
$0
50
$2
40
$4
30
$6
20
$8
10
9.
Refer to Table 5-12. Using the midpoint method, what is the price elasticity of demand between
$2 and $4?
10.
Refer to Table 5-12. Using the midpoint method, what is the price elasticity of demand between
$6 and $8?
11.
Refer to Table 5-12. Between which two quantities listed is demand most inelastic?
12.
Refer to Table 5-12. Between which two quantities listed is demand most elastic?
13.
Refer to Table 5-12. Between which two quantities listed is demand unit elastic?
Elasticity and Its Application 1379
Table 5-13
Consider the following demand schedule.
Price
Quantity Demanded
$0
1,000
$3
800
$6
600
$9
400
$12
200
$15
0
14.
Refer to Table 5-13. Using the midpoint method, demand is unit elastic when price changes
from
15.
Refer to Table 5-13. Using the midpoint method, what is the price elasticity of demand between
$12 and $15?
16.
Refer to Table 5-13. Using the midpoint method, between which two prices is price elasticity of
demand most
inelastic?
17.
Suppose demand is given by the equation:
Using the midpoint method, what is the price elasticity of demand between $1 and $2?
18.
Suppose demand is given by the equation:
Using the midpoint method, what is the price elasticity of demand between $7 and $8?
19.
Suppose demand is given by the equation:
Using the midpoint method, what is the price elasticity of demand between $1 and $2?
20.
Suppose demand is given by the equation:
Using the midpoint method, what is the price elasticity of demand between $2 and $4?
21.
Suppose a market has the demand function Qd=20-0.5P. Using the midpoint method, what is the
price elasticity of
demand between $30 and $40?
22.
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?
23.
What is the price elasticity of demand at any point on a perfectly inelastic demand curve?
24.
What is the price elasticity of demand at any point on a perfectly elastic demand curve?
25.
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?
26.
Suppose demand is given by the equation:
At what price will total revenue be maximized?
27.
Suppose demand is given by the equation:
At what point along this demand curve will total revenue be maximized?
28.
Suppose a market has the demand function Qd=20-0.5P. At what price will total revenue be
maximized?
29.
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?
30.
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?
31.
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?
32.
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.
33.
If the cross-price elasticity of demand between two goods is negative, what is the relationship
between the two
goods?
34.
If the cross-price elasticity of demand between two goods is positive, what is the relationship
between the two
goods?
Scenario 5-7
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.
35.
Refer to Scenario 5-7. 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?
36.
Refer to Scenario 5-7. Good X and Good Y are related as
37.
Refer to Scenario 5-7. 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
38.
If the income elasticity of demand for a good is –1.40, is the good a normal or inferior good?
39.
If the income elasticity of demand for a good is 0.56, is the good a normal or inferior good?
Scenario 5-8
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.
40.
Refer to Scenario 5-8. Considering the income elasticity, what type of good is mobile telephone
service?
41.
Refer to Scenario 5-8. Using the midpoint method, what is the income elasticity of demand for
mobile service?
42.
Refer to Scenario 5-8. 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?
43.
Refer to Scenario 5-8. Using the midpoint method, what is the cross price elasticity of demand
for landline and
mobile service?
44.
With regard to elasticity, if a firm has a longer time to adjust to a price increase, supply will be
more
45.
With regard to elasticity, as a firm nears its production capacity, supply becomes more
46.
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
Elasticity and Its Application 1391
Figure 5-21
47.
Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between
$15 and $25?
48.
Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between
$25 and $35?
49.
Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between
$5 and $15?
50.
If the quantity supplied is exactly the same regardless of the price, supply is
51.
If a supply curve is perfectly vertical, what is the value of the price elasticity of supply?
52.
If a supply curve is perfectly horizontal, what is the value of the price elasticity of supply?
53.
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.
54.
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?
