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Exam 6: Elasticity: the Responsiveness of Demand and Supply

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Question 61

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A recent study indicated that "Stricter college alcohol policies such as raising the price of alcohol,or banning alcohol on campus,decreases the number of students who use marijuana." This indicates that the cross-price elasticity between alcohol and marijuana is positive.

A) True
B) False

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Question 62

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Suppose at a price of $50,Yoshi's Jazz Bar sells 20 tickets to its nightly jazz performance and at a price of $40,it sells 25 tickets.Based on this information,the demand for Yoshi's jazz performance is elastic.

A) True
B) False

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Question 63

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Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

A newspaper story on the effect of higher milk prices on the market for ice cream contained the following: "As a result [of the increase in milk prices],retail prices for ice cream are up 4 percent from last year....And ice cream consumption is down 3 percent." Source: John Curran,"Ice Cream,They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press,July 23,2001. Based on the information given,what is the price elasticity of demand for ice cream?

Suppose the supply of bicycles is price elastic.This means that

Economists use the concept of ________ to measure how one economic variable,such as quantity,responds to a change in another economic variable,such as price.

Figure 6-10 -Refer to Figure 6-10.A unit-elastic supply curve is shown in

If the demand for a steak is unit elastic,then

Total revenue is equal to

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.

For people who live near a bus route,a subway station,or a commuter rail line,public transportation provides a substitute to driving their own cars.So,for these people,the cross-price elasticity of demand between gasoline and public transportation is

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number,then it indicates that

The U.S.government's focus on supply reduction efforts in its "war on drugs" has been relatively unsuccessful at addressing illegal drug use.Some economists believe that a successful anti-drug program must concentrate on reducing demand;for example,through drug education and voluntary treatment programs for addicts. a.What will happen to the equilibrium price,quantity,and total revenue from cocaine sales if the government succeeds in its efforts to reduce demand? What is likely to happen to the incentive to sell cocaine? b.Suppose the government continues to concentrate its efforts on supply reduction and is able to reduce the supply of cocaine.As a result of the reduction in supply the price of cocaine increases by 25 percent.If the price elasticity of demand is -0.5,what is likely to happen to the incentive to sell cocaine? c.Based on your answers,explain why one approach might be preferred over the other.

Figure 6-7 -Refer to Figure 6-7.Using the total revenue test to verify the price elasticity between points a and b on the demand curve,demand is

The price elasticity of demand for Kellogg's Raisin Bran is larger in absolute value than the price elasticity of demand for all breakfast cereals.

Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50,the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03.These elasticities mean that beer and spirits are ________,and spirits and wine are ________.

Last year,Joan bought 50 pounds of hamburger when her household income was $40,000.This year,her household income was only $30,000 and Joan bought 60 pounds of hamburger.Holding everything else constant,Joan's income elasticity of demand for hamburger is

Figure 6-6 -Refer to Figure 6-6.As price falls from PA to PB,the quantity demanded increases most along D1;therefore

Assume that the price elasticity of demand for gasoline is -0.06.If the government tax causes the price of gasoline to increase by 50 percent,what will be the decrease in the quantity of gasoline demanded?

The government of Bassaland is looking for new revenue sources.It is considering imposing an excise tax on two goods: palm wine and diapers.If the price elasticity of demand for the goods are -0.47 and -1.89 respectively,which good should it tax if the goal is to raise revenue? If the government wants to tax only one good,which good should it tax if the goal is to discourage consumption? Explain your answer.