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Exam 3: Demand Elasticities

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Question 41

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When a consumer moves from a lower to a higher indifference curve, the marginal rate of substitution automatically increases.

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Question 42

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Illustrate graphically the effect the credit market crisis in the United States in 2008 had in the market for existing single-family homes.Assuming the demand for existing single-family homes is relatively inelastic, what is likely to happen to the total revenues of home sellers as a result of the credit market crisis?

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The credit market crisis resulted in a l...

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Question 43

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When demand is perfectly inelastic with respect to price, the demand curve is horizontal.

Calculate the arc price elasticity of demand for wheat in the two situations below: Can you account for the difference in elasticities?

An increase in price will result in no change in total revenue if:

A decrease in price will result in an increase in total revenue if:

For a linear demand function, slope and the price elasticity of demand are equal.

Information on the price elasticity of demand is particularly important to managerial decision making because:

Hot dogs and hot dog buns would be expected to have:

While the demand for beer is relatively price inelastic, the price elasticity of demand for a particular brand is relatively high, due in large part to availability of close substitutes.

At the point on the demand curve at which marginal revenue = 0, the absolute value of the coefficient of the price elasticity of demand is:

Observations of consumer behavior suggest that when the price of gasoline rose above $3.50 per gallon, consumer demand for gas became considerably more price elastic.

Summarize the relationship between elasticity, price changes, and changes in total revenue.

As we move down a particular indifference curve, if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

Assume the income elasticity of a good has been calculated to be +0.83.Based on this information, we can infer that the good is:

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

Suppose a consumer's income increases from $30,000 to $36,000.As a result, the consumer increases her purchases of compact disks (CDs) from 25 CDs to 30 CDs.What is the consumer's income elasticity of demand for CDs?

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple.The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons.What is the arc price elasticity of demand for movies?

Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.

Assume that when the price of good X is $12, quantity demanded is 32.When price is decreased to $9, quantity demanded increases to 45.Over this range, the arc elasticity of demand is 1.182.