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Compute the approximate elasticity of demand

Question 1

Compute the approximate elasticity of demand from the following data:

Answer

.87

1.15

1.5

5.0.

Question 2

Refer to the graph. Between points A and B, demand is:

Answer

inelastic.

elastic.

unit elastic.

perfectly elastic.

Question 3

If the supply curve intersects the vertical (price) axis, the supply curve has an elasticity:
Answer

less than one.

equal to one.

greater than one.

that is indeterminate.

Question 4

Refer to the graph. The approximate elasticity of demand at point C is:

2

1

2/3

3/2

Question 5

A good whose consumption decreases when income increases is generally called:

a normal good.

an inferior good.

a substitute good.

a complementary good.

Question 6

USA Today noted in 2004 that the destruction caused by three 2004 hurricanes plus the already high real-estate prices was making people reconsider retiring to Florida because insurance premiums were increasing. Some people approaching retirement were quoted as saying that retirement to New Mexico was looking more attractive. Based on this information, retirement housing in Florida and Arizona are what kind of goods?

Florida housing had become an inferior good, while New Mexico housing was a luxury good.

Florida housing had become a luxury good, while New Mexico housing was an inferior good.

Florida and New Mexico housing are substitute goods.

Florida and New Mexico housing are complementary goods.

Question 7

If pizzas and quesadillas are substitutes, and the price of pizzas decreases, then we would expect to see:
Answer

an increase in the demand for quesadillas.

a decrease in the demand for quesadillas.

an increase in the quantity demanded for quesadillas.

a decrease in the quantity demanded for quesadillas.

Question 8

In 2004, the Wall Street Journal reported that Starbucks was set to raise some of its prices. The article stated that "economics professors often use Starbucks as an example of a company whose product seems to have little price elasticity." What does quotation imply?

When Starbucks' raises prices, its revenue increases.

When Starbucks raises prices, it loses many customers.

When the price of coffee sold by Starbucks' competitors changes, there is little effect on Starbucks' sales.

When the price of coffee sold by Starbucks' competitors changes, there is big effect on Starbucks' sales.

Question 9

If the quantity of Big Macs demanded falls from 2.0 million to 1.6 million, as the price of Whoppers falls from $1.40 to $.80, the cross price elasticity of demand for Big Macs is:

-2.5.

-0.4.

2.5

0.4.

Question 10

The more specifically or narrowly a good is defined the:

more substitutes it has and therefore the more elastic its demand curve.

more substitutes it has and therefore the more inelastic its demand curve.

fewer substitutes it has and therefore the more inelastic its demand curve.

more unit elastic its demand curve.

Attachments

Solution Preview

Compute the approximate elasticity of demand from the following data:

1.15

Q2 - Q1 / (Q2+ Q1 )/ 2 / P2 - P1 / ( P1 + P2 ) / 2 =
2/25/2 / 3 /43/2 =
2 / 12.5 / 3/21.5=
0.16/ 0.14 = 1.14

Question 2

Refer to the graph. Between points A and B, demand is:

elastic.

Revenue is increasing faster than quantity sold.

Question 3

If the supply curve intersects the vertical (price) axis, the supply curve has an elasticity:

greater than one.

As prices begin with a larger base value than quantity, any price changes are relatively smaller than the quantity changes resulting in a relatively elastic supply.

Question 4

Refer to the graph. The approximate ...

Solution Summary

Hurricanes and the economy; elasticity of demand; substitute goods

$2.19