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Exam 4: Demand Elasticity

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Question 1

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When a government imposes a price floor on a good that is above the market equilibrium price

A) a surplus will develop.
B) a shortage will develop.
C) producers will increase their sales price.
D) consumers will increase their demand for the good.

E) A) and B)
F) B) and D)

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Question 2

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If the demand for a good is price inelastic and the good price is increased,then the marginal revenue (MR) received by the seller will

A) not change.
B) decrease.
C) increase.
D) Cannot be determined from this information

E) C) and D)
F) None of the above

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Question 3

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You are told that the price elasticity of demand for widgets is -0.75,the income elasticity of widgets is 2,and the cross-price elasticity of widgets and gadgets is 4.Carefully explain what information you can gather from each of these figures.

Suppose that the price elasticity of demand for wheat is known to be -0.75.Will a good wheat crop (which increases the supply of wheat)be likely to increase or decrease the revenues of farmers? Carefully explain.

When total revenue reaches its peak (elasticity equals 1) ,marginal revenue reaches

If OPEC increases its price of oil,and still the demand for oil decreases by a very small amount,we can conclude that the demand for oil is

The initial price of a cup of coffee is $1,and at that price,400 cups are demanded.If the price falls to $0.90,the quantity demanded will increase to 500. a.Calculate the (arc)price elasticity of demand for coffee. b.Based on your answer,is the demand for coffee elastic or inelastic? c.Based on your answer to a.,if the price of coffee is increased by 10%,what will happen to the revenues from coffee? Carefully explain how you know.

Governments impose excise taxes on goods that have inelastic demand,such as cigarettes,more often than in other cases.Why?

Suppose the price of crude oil drops from $150 a barrel to $120 a barrel.The quantity bought remains unchanged at 100 barrels.The coefficient of price elasticity of demand in this example would be

If government imposes an excise tax on a good and the tax burden is borne equally by buyers and sellers,then

$\text {Table 1}$ $\text {The following information is provided for Tony Romo's income and expenditures.}$ $\begin{array}{l}\underline{\text { Quantity Purchased per Month }}\\\begin{array}{ccc}\underline{\text { Monthly Income }} & \underline{\text { Steaks }}&\underline{ \text { Pizzas } }\\\$ 2,000 & 2 & 8 \\\$ 3,000 & 4 & 6\end{array}\end{array}$ -In Table 1,Tony's income elasticity of demand for pizzas is

A perfectly elastic demand curve

The cross-price elasticity of demand for coffee and caskets is likely to be

Which of the following instances will total revenue or receipts decline?

The sensitivity of the change in quantity consumed of one good to a change in the price of a related good is called

If the price of a good is decreased and total revenue received from the sale of this good does not change,then the price elasticity of demand for the good is

The demand for salt is relatively price inelastic,while the demand for pretzels is relatively price elastic.How can you best explain why?

The derived demand curve for a good component will be more inelastic

The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1,the quantity sold per hour fell from 18 to 8.The arc elasticity of demand for lettuce is

Demand and supply in the wheat market are given by: Q_D = 2000 - 1000 P and Q_S = -500 + 1000 P where Q is millions of bushels and P is price per bushel. a.Find the equilibrium price and quantity. b.Suppose that the government wishes to support farm income and thus sets a price floor of $1.50/bushel.Find the size of the farm surplus. c.What is the cost of this program to the government?