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Exam 5: Elasticity and Its Application

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Question 61

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Suppose demand is given by the equation: Q^D = 80/P At what point along this demand curve will total revenue be maximized?

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Question 62

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When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

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Question 63

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Scenario 5-3 ​ Suppose the demand function for good X is given by: $Q _ { d x } = 15 - 0.5 P _ { x } - 0.8 P _ { y }$ where $Q _ { d x }$ is the quantity demanded of good X, $P _ { x }$ is the price of good X, and $P _ { y }$ is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Good X and Good Y are related as

Suppose demand is given by the equation: Q^D = 80/P Using the midpoint method, what is the price elasticity of demand between $2 and $4?

In January, the price of dark chocolate candy bars was $2.00, and Willy's Chocolate Factory produced 80 pounds. In February, the price of dark chocolate candy bars was $2.50, and Willy's produced 110 pounds. In March, the price of dark chocolate candy bars was $3.00, and Willy's produced 140 pounds. Using the midpoint method, the price elasticity of supply of Willy's dark chocolate candy bars was about

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

Figure 5-5 -Refer to Figure 5-5. If the price decreased from $36 to $12, total revenue would

For a good that is a luxury, demand

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

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.

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

Table 5-1 ​ ​ $\begin{array} { | c | c | } \hline \text { Good } & \begin{array} { c } \text { Price Elasticity } \\\text { of Demand }\end{array} \\\hline \mathrm { A }& 1.9 \\\hline \mathrm { B } & 0.8 \\\hline\end{array}$ ​ -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. Is a restaurant meal a normal or inferior good to the couple?

If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.

Figure 5-7 -Refer to Figure 5-7. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

If the price elasticity of demand is equal to 0, then demand is unit elastic.

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

For which of the following goods is the income elasticity of demand likely lowest?

Figure 5-3 ​ -Refer to Figure 5-3. Using the midpoint method, between prices of $10 and $20, price elasticity of demand is about