Consider Sam and Linda both drive a relatively inefficient sport utility vehicle (SUV). Sam has a lease that doesn’t expire for three years whereas Linda owns her sport utility vehicle free and clear. If the price of gasoline was to increase by fifty percent, which of these statements is most likely TRUE? A) Linda will […]
The short-run price elasticity of demand for refrigerators is relatively inelastic. Indicate whether the statement is true or false ANSWER False. People can put off buying a refrigerator in the short run. Therefore demand is elastic in the short run.
Explain why when the demand curve for a good is elastic, a one percent reduction in the price of the good will increase a consumer’s expenditure on the good. What will be an ideal response? ANSWER When a good has an elastic demand, a one percent decrease in the price will result in a […]
The supply of movie tickets at one theater’s box office for this Saturday’s 4:30 show of a new movie is A) perfectly elastic until all seats are filled. B) unit elastic. C) perfectly inelastic. D) elastic. ANSWER C
The market demand for wheat is Q = 100 – 2p + 1pb, where pb is the price of barley. If the price of wheat is $2 and the price of barley is $4, the cross-price elasticity of demand A) equals (4/100). B) equals (-2/100). C) equals (-4/25). D) cannot be calculated without more information. […]
If the supply curve for orange juice is estimated to be Q = 40 + 2p, then A) supply is price elastic at all prices. B) supply is price inelastic at all prices. C) supply is elastic only at prices below 20. D) No general statements about price elasticity of supply can be made. […]
Assume the market demand for wheat may be written as Q = 45 – 2p + 0.3Y + 1pb where Y refers to income and pb refers to the price of barley. Assuming that wheat and barley both sell for $1, and income is $20, calculate the price elasticity, cross price elasticity and income elasticity […]
When comparing elasticities between two different linear demand curves, the curve that is flatter has greater price elasticity at every given price. Indicate whether the statement is true or false ANSWER False. This statement confuses slope with elasticity. Elasticity is calculated by multiplying the slope times (p/Q). As a result, the vertical intercept (along […]
In the late 1980s, the health benefits of oat bran were widely advertised. If the price of oats increased 50%, causing the quantity of oats supplied to increase by 40%, then the price elasticity of supply was A) 1.25. B) -1.25. C) -0.80. D) 0.80. ANSWER D
The price elasticity of demand for gasoline is estimated to be -0.2. Two million gallons are sold daily at a price of $3. Use this information to calculate a demand curve for gasoline assuming it is linear. What will be an ideal response? ANSWER Elasticity = slope (p/Q), -0.2 = slope (3/2). The slope […]
