Elasticity and Its Applications — Worksheet Extraction

If you want to know how an increase in the price of ice cream at the next door Ice Cream Shoppe affects the demand for frozen yogurt in your shop you would compute the:

• Cross-price elasticity of demand

• Income elasticity of demand

• Price elasticity of supply

• Price elasticity of demand

Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth,

• Alice’s demand for banana splits is perfectly inelastic

• Alice’s income elasticity of demand for banana splits is negative

• Alice’s price elasticity of demand for banana split is 1

• None of the above answers is correct

A perfectly elastic demand curve will be

• upward sloping to the right

• downward sloping to the right

• horizontal

• vertical

The discovery of a new hybrid wheat would tend to increase the supply of wheat. Under what conditions would wheat farmers realize an increase in revenue?

• if the demand for wheat is inelastic

• if the supply of wheat is inelastic

• if the supply of wheat is elastic

• if the demand for wheat is elastic

A binding price floor will reduce a firm's total revenue

• when demand is elastic.

• when demand is inelastic.

• never

• always

If two goods are complements, their cross-price elasticity will be

• positive.

• negative.

• zero.

• equal to the difference between the income elasticities of demand for the two goods.

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would

• be negative, and your roommate's would be positive.

• be positive, and your roommate's would be negative.

• be zero, and your roommate's would approach infinity.

• approach infinity, and your roommate's would be zero.

The demand for grape-flavored Hubba Bubba bubble gum is likely

• inelastic because there are many close substitutes for grape-flavored Hubba Bubba.

• elastic because there are many close substitutes for grape-flavored Hubba Bubba.

• inelastic because the market is broadly defined.

• elastic because the market is broadly defined.

Suppose that gasoline prices increase dramatically this month. Kaliah commutes 100 miles to work each weekday. Over the next few months, Kaliah drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of

• the time horizon in determining the price elasticity of demand.

• the availability of close substitutes in determining the price elasticity of demand.

• a necessity versus a luxury in determining the price elasticity of demand.

Cross-price elasticity of demand measures how

• the price of one good changes in response to a change in the price of another good.

• the quantity demanded of one good changes in response to a change in the quantity demanded of another good.

• the quantity demanded of one good changes in response to a change in the price of another good.

• strongly normal or inferior a good is.