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Exam 6: Elasticity: the Responsiveness of Demand and Supply

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Question 81

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If the market for a product is broadly defined, then

A) the good has many complements.
B) there are few substitutes for the product and the demand for the product is relatively inelastic.
C) there are many substitutes for the product and the demand for the product is relatively elastic.
D) the expenditure on the good is likely to make up a large share of one's budget.

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Question 82

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Necessities tend to have more inelastic demands than luxuries.

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Question 83

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An article in the Wall Street Journal noted the following: Instead of relying on a full-coach, round-trip unrestricted fare of about $2,000 between Cleveland and Los Angeles ...Continental [Airlines] since June has offered a $716 unrestricted fare in that market ....Through October, the test resulted in about the same revenue that Continental thinks it would have collected with its higher fare. Source: Scott McCartney, "Airlines Try Cutting Business Fares, Find They Don't Lose Revenue," Wall Street Journal, November 22, 2002. What is the absolute value of the price elasticity of demand on this airline route?

When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?

Figure 6.1 -Refer to Figure 6.1.A perfectly inelastic demand curve is shown in

Figure 6.6 -Refer to Figure 6.6.A perfectly inelastic supply curve is shown in

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.What does this mean?

The demand for gasoline in the short run is

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would