36858315

.pdf

School

George Washington University *

*We aren’t endorsed by this school

Course

1011

Subject

Economics

Date

Apr 3, 2024

Type

pdf

Pages

Uploaded by ConstableCrocodileMaster1093

ECON 1011 Prof. Foster ©I. R. Foster 1 ELASTICITY Terms: Price Elasticity of Demand – Elastic Demand – Unit Elastic Demand – Inelastic Demand – Price Elasticity of Supply – Income Elasticity of Demand – not covered on Midterm 1 Cross-Elasticity of Demand – not covered on Midterm 1 True/False: 1) If the slope of a demand curve is equal to -0.1 then we don't know whether the demand is elastic or inelastic. True or False? 2) If the demand for a steak is unit-elastic, then the percentage change in quantity demanded is 1 percent greater than the percentage change in price. True or False? 3) If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then the price elasticity of demand for teapots is greater than 1 in absolute value. True or False? 4) If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price. True or False? 5) If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded. True or False? 6) If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic. True or False? 7) The larger the share of a good in a consumer's budget, holding everything else constant, the more price inelastic is a consumer's demand. True or False? 8) In general, if a product has few substitutes it will have an elastic demand. True or False? 9) In general, a "big ticket item" such as a house or new car will tend to have a more elastic demand than a lower priced good. True or False? 10) Jill believes that the price elasticity of demand for her economics textbook is relatively inelastic. She argues "I was told I had to purchase a book written by Hubbard and O'Brien as required by my instructor. If I wanted to buy a mystery novel I would have many authors to choose from. Therefore, the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct? 11) Opera Estate Girls' School is increasing its tuition. If the school believes that raising tuition will increase revenue, it is assuming that the demand for attending the school is perfectly elastic. True or False?

ECON 1011 Prof. Foster ©I. R. Foster 2 12) Along a downward sloping, linear demand curve, total revenue is the greatest where demand is unit- elastic. True or False? 13) Suppose a decrease in the supply of paper results in an increase in revenue. This indicates that the demand for paper is inelastic. True or False? 14) The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury. True or False? 15) Most food products have low income- and price-elasticities of demand. True or False? 16) If the quantity supplied of walkie-talkies increases by 5 percent when prices increase by 12 percent, then the supply of walkie-talkies is inelastic. True or False? 17) Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. The more elastic the supply curve, the greater the price increase. True or False? 18) Refer to the figure below. The section of the demand curve labeled "A" represents the inelastic section of the demand curve. True or False? 19) In the figure below, as price falls from P A to P B , the quantity demanded increases most along D 1; therefore, D 1 is more elastic than D 2 or D 3 . True or False?

ECON 1011 Prof. Foster ©I. R. Foster 3 Multiple Choice: 20) The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 percent increase in the price of beef, holding every thing else constant, will cause the quantity of beef demanded to increase/decrease by __________%. 21) When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is elastic/inelastic . 22) If the absolute value of the price elasticity of demand for DVD movies is 0.8 then the elasticity of demand for the DVD for the Bruce Willis movie Die Hard should be greater than/less than 0.8 in absolute value. 23) Holding everything else constant, the absolute value of the price elasticity of demand for Saucony tennis shoes is greater than/less than the price elasticity of demand for tennis shoes. 24) In order to prove that Motrin and Ibuprofen are substitutes, one should measure the _________________ elasticity and get a positive/negative number. 25) When the price of pistachio nuts is $7.50 per lb. the quantity demanded is 48 lbs. When the price is $9.00 per lb. the quantity demanded is 40 lbs. When the midpoint formula is used to measure the price elasticity of demand we can say that the demand for pistachio nuts is elastic/unit-elastic/inelastic . 26) Between points a and b on the demand curve, demand is inelastic/unit-elastic/elastic . Show calculations . 27) Refer to the figure below. The demand for milkshakes is unit elastic at Point C . If a store reduces the price of a milkshake from P 3 to P 4, its total revenue will increase/stay the same/decrease. Circle the right answer .

ECON 1011 Prof. Foster ©I. R. Foster 4 Problems & Graphing: 1) Assume that when the price of cantaloupes is $2.50 the demand for cantaloupes is unit-elastic, and that the demand curve for cantaloupes is linear and downward sloping. If firms lower the price of cantaloupes to $2.00, the price elasticity of demand for cantaloupes must be ______________. 2) You own a bookstore. You believe that you can sell 40 copies per day of the latest Harry Potter novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the mid-point formula. What is the price elasticity of demand for the Harry Potter book? What will happen to revenue if the price is lowered? 3) The current price of canvas messenger bags is $36 each and sales of the bags equal 400 per week. If the price elasticity of demand is -2.5 and the price changes to $44, how many messenger bags will be sold per week? Use the midpoint formula. 4) For each pair of items below, circle the product that would have the higher price elasticity of demand (in absolute value). a) Blood pressure medicine vs. Clairol hair coloring product. b) A new Ford Fusion or a tank of gas for your current car. c) A Seiko watch or watches in general. 5) Indicate whether the products listed as "Product B" will have a more elastic or less elastic demand than the corresponding Product A. Product A Estimated Elasticity for Product A Product B Would Elasticity for Product B Be More Elastic or Less Elastic than for Product A? Beer - 0.23 Samuel Adams Boston Lager Chicken - 0.37 Organically raised chicken Cocaine - 0.28 Illegal narcotics Cigarettes - 0.25 Marlboro Lights Restaurant meals - 0.67 Denny's Grand Slam breakfast 6) Assume that you own a small boutique hotel. In an attempt to raise revenue you reduce your rates by 20 percent. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Recommended textbooks for you

Microeconomics: Private and Public Choice (MindTa...

Economics

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:Cengage Learning

Economics: Private and Public Choice (MindTap Cou...

Economics

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:Cengage Learning

ECON MICRO

Economics

ISBN:9781337000536

Author:William A. McEachern

Publisher:Cengage Learning

Microeconomics A Contemporary Intro

Economics

ISBN:9781285635101

Author:MCEACHERN

Publisher:Cengage

Managerial Economics: Applications, Strategies an...

Economics

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:Cengage Learning

Economics (MindTap Course List)

Economics

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Cengage Learning

SEE MORE TEXTBOOKS

Recommended textbooks for you

Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
ECON MICRO
Economics
ISBN:9781337000536
Author:William A. McEachern
Publisher:Cengage Learning
Microeconomics A Contemporary Intro
Economics
ISBN:9781285635101
Author:MCEACHERN
Publisher:Cengage
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning