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Q: micro ( Answered,   0 Comments )
Subject: micro
Category: Business and Money > Economics
Asked by: k9queen-ga
List Price: $20.00
Posted: 30 Sep 2003 09:45 PDT
Expires: 30 Oct 2003 08:45 PST
Question ID: 261557
6)alice sys that she would buy one banana split a day regardless of
the price.  If she is telling the truth,
a) her demand for banana splits is perfectly inelastic.
b)her price elastitcity of demand for banana splits is 1.
c)her income elasticity of demand for banana splits is negative.
d)none of the above.

7)An auto rental company lowers the price of rentals to increase its
market share.  The price cut increases quantity demanded, but total
revenue decreases.  The result suggests that over this price range,
the demand for the auto rentals is:
c)unit elastic
d)perfectly elastic

8)An increase in the price of tickets to a popular sporting event will
increase total revenue if:
a)there are many substitutes for the product.
b)the ticket is considered to be a luxury .
c)the demand for tickets is inelastic.
d)the demand for tickets is elastic.

9)Consider a situation where the U.S. Congress wants to place a
special tax on private airplanes to increase tax revenue.  This tax
would only be effective in raising new tax revenues if the price of
elasticity is:
a)supply is elastic
b)supply is inelastic
c)demand is elastic
d)demand is inelastic

10) Elasticity of demand id closely realted to the slope of the demand
curve. The less responsive buyers are to a change in price, the demand
curve will be:
b)further to the right
d)closer to the vertical axis
Subject: Re: micro
Answered By: wonko-ga on 30 Sep 2003 10:11 PDT
6. a) her demand for banana splits is perfectly inelastic.  "Perfectly
inelastic demand means that there is no change at all in quantity
demanded when price goes up or goes down."  (page 744)

7. b) inelastic.  "Price-inelastic demand (or inelastic demand).  The
situation in which price elasticity of demand is below 1 in absolute
value.  In this case, when price declines, total revenue declines...."
(page 744)

8. c) inelastic.  "Price-inelastic demand (or inelastic demand).  The
situation in which price elasticity of demand is below 1 in absolute
value.  In this case, ...when price is increased, total revenue goes
up."  (page 744)

9. d) demand is inelastic.  The tax acts as an increase in cost to the
buyer.  So, the situation is similar to that in question 8.

10. a) steeper.  "A change in the quantity buyers want to purchase,
prompted by any reason other than a change in a "change in
demand."  (In graphical terms, it is a shift of the demand curve.) 
If, in contrast, the decision to buy more or less is prompted by a
change in good's price, then it is a "change in quantity demanded." 
(page 731)

This definition eliminates answers b) and d).  Perfectly elastic
demand is flat (page 68, Figure 5-3).  As is illustrated in Figure 5-2
on page 67, inelastic demand, which occurs when buyers are less
responsive to changes in price, is quite steep.  In fact, in Figure
5-3, perfectly inelastic demand is a vertical line.



Source: "Economics" 14th edition, by Samuelson & Nordhaus, McGraw-Hill
Inc., 1992
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