Chapter 5

Answer the questions about the graph shown above. NOTE: There is no equilibrium in this situation. The graph merely shows four different supply or demand curves. Match each curve with the best matching value of price elasticity.

• _____

• 1.17

• _____

• -0.85

• _____

• -0.69

• _____

• 0.71

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F1

A firm in this industry would likely prefer to avoid supply curve _____ and demand curve _____ for the best possible outcome.

• (A) (1 point)

• (B) (2 point)

• (C) (3 point)

• (D) (4 point)

Consider demand curve C. Which point on the demand curve is most likely the unit elastic point?

• Point A

• Point B

• Point C

• Point D

Where should a point be drawn along demand curve D to indicate strongly inelastic demand?

• At the midpoint of the demand curve

• At the upper end of the demand curve

• At the lower end of the demand curve

• At any random point on the demand curve

Curve _____ would be the most likely one shown to indicate that a seller wouldn’t produce very much more, even with a considerable rise in price.

• Curve inelasticity would be the most likely one shown to indicate that a seller wouldn’t produce very much more, even with a considerable rise in price.

• Curve elasticity would be the most likely one shown to indicate that a seller wouldn’t produce very much more, even with a considerable rise in price.

• Curve supply would be the most likely one shown to indicate that a seller wouldn’t produce very much more, even with a considerable rise in price.

• Curve demand would be the most likely one shown to indicate that a seller wouldn’t produce very much more, even with a considerable rise in price.

• 0.5

• 1.0

• -0.5

• -1.0

(6 points) Suppose we are dealing with the market for recliners. (B) What does your answer tell you about recliners?

• Recliners are in high demand.

• Recliners are a luxury item.

• Recliners have a stable market.

• Recliners are becoming obsolete.

Suppose the cross-price elasticity of demand between fries and tater tots is 4. (A) A 15 percent increase in the price of hot dogs should cause what percent change in the quantity of hamburgers purchased?

• 60 percent increase

• 60 percent decrease

• 15 percent increase

• 15 percent decrease

Suppose the cross-price elasticity of demand between fries and tater tots is 4. (B) Suppose we consider another good, chicken nuggets. What do you think must be true about the value of the cross-price elasticity of demand between fries and chicken nuggets?

• It must be greater than 4.

• It must be less than 4.

• It must be equal to 4.

• It could be any value.

In a certain market, the total revenue forms the shape of a rectangle with a shorter base than its height. In this situation, the firm should (a)   the price to increase revenue.

• increase

• decrease

• maintain

• analyze