Elasticity

If the price of coffee drops from $6 to $5 and sales rise from 80 to 85, what is the price elasticity of demand? (Use the midpoint formula!)

• .37

• .33

• 1.34

• -.33

If your salary increases by 50 % and in response you increase your t-shirt purchases by 5 %, income elasticity equals______and clothing is_______.

• 0.1; normal good

• 10; inferior good

• 0.1; luxury good

• 10; luxury good

Deadweight loss is more pronounced when a tax is placed on goods and services with an____________ demand.

• elastic

• inelastic

If the elasticity of demand for a product equals 1.5, then an increase in the product price will cause total revenue to

• decrease.

• increase.

• remain the same.

The determinants of the price elasticity of demand for a specific good include all of the following except:

• the availability of substitutes

• the time period involved

• the ease with which resources can be shifted to and from the production of this good to other uses

• whether the good is a luxury or neccessity

Consumers will bear more of the burden of a tax when

• the supply is very elastic

• the supply is very inelastic

• the demand is very elastic

Which of the following products would likely have an inelastic demand?

• Fizzy cola, a carbonated soda

• A meal at an expensive steak house

• auto repair for your car

• Nike's Air Force One's

If the demand for a product is inelastic, what does this tell you about consumer behavior?

• Consumers are really responsive to changes in price and significantly change the amount they buy based on prices.

• Consumers are not responsive to changes in price and don't significantly change the amount they buy based on prices.

• Consumers are completely unresponsive to changes in price and will buy the good no matter what.

• Consumers are really responsive to changes in price but only when the price decreases.

If the demand curve is perfectly inelastic it is

• Downward sloping

• Horizontal

• Vertical

• Upward sloping

If the government decides to tax a product with the goal being to maximize tax revenue which type of good should they tax?

• Goods with an elastic demand so that people can choose whether to buy them or not.

• Goods with an inelastic demand so that people will buy them even with the tax.

• The potential revenue will not be impacted based on whether the demand for a good is elastic or inelastic.

• Goods with a perfectly elastic demand.