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Principles of Microeconomics 11th Edition Case Test Bank 1
Principles of Microeconomics 11th Edition Case Test Bank 1
Principles of Microeconomics 11th Edition Case Test Bank 1
Chapter 5
Elasticity
PRICE ELASTICITY OF DEMAND
Elasticity measures the response in one variable when another variable changes.
3. Why isn't slope as useful as elasticity to measure the responsiveness of one variable to
another?
The numerical value of slope depends on the units used to measure the variables on
the axes. Thus, if two demand curves represent the same demand behavior but are
measured in different units (ounces versus pounds, for example), we will get two
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126 Case/Fair/Oster, Principles of Microeconomics, 11th Edition
different measures of responsiveness. Elasticity does not have this problem because
it is calculated using percentage change.
4. Explain how it is possible for a downward-sloping demand curve to have a constant slope
but still have a variation of elasticity of demand along it.
Slope measures rise over run. However, elasticities measure percent changes in the
quantity demanded divided by the percent change in the price. Even along a linear
demand curve with a constant slope the demand is more elastic in the upper left-
hand corner and becomes less elastic as one moves down and to the right until it
becomes unitary and then inelastic.
5. What does it mean for a good to have a perfectly inelastic demand? Draw a demand
curve of this type. Explain why it has the shape that it does.
If a product has a perfectly inelastic demand, this means that the quantity
demanded does not respond at all to a change in price. This implies that the
demand curve will be vertical. No matter what the price is, quantity demanded is
always the same.
The law of demand says that an increase in the price of a product will lead to a
decrease in quantity demanded. Thus, price and quantity demanded are inversely
related to one another. This means that if either the numerator or the denominator
of the ratio is positive, the other will be negative.
If the price elasticity of demand were positive this would mean that demand curve is
upward-sloping. We are unlikely to find a price elasticity of demand that is positive
because this would contradict the law of demand.
8. How does one determine whether demand is elastic, inelastic, or unit elastic?
If the absolute value of the price elasticity of demand is greater than one, demand is
elastic. If it is less than one, demand is inelastic. If the absolute value of the price
elasticity of demand is equal to one, demand is unit elastic.
9. Assume a customer of natural gas is negotiating with his supplier over the telephone. At
the time prices of all the supplier’s competitors are precisely the same. The customer tells
the supplier that if he raises his price even one penny he will walk away. What does the
perceived demand curve for natural gas look like for this customer? Why?
The elasticity of demand is perfectly elastic. The demand curve is horizontal at the
current price. The customer is likely to behave this way since he sees that there are
other suppliers willing to offer the same price for essentially what he perceives to be
a homogeneous good.
10. In the past dating was a fairly simple activity in the United States. If there was someone
you wanted to go out with you would call them or ask them to go out for dinner and a
movie. Nowadays it appears that many people are willing to pay large amounts of money
to professional dating services to find a compatible mate. This idea is not a new one but it
has increased quite dramatically in popularity. What does this suggest about what kind of
good dating services might be and why? Are we likely to find this type of service be
more or less prevalent in poorer countries?
The country has become much richer over the past few decades and even though
people want to date just as much today as they always have, the fact that they have
more disposable income that they can use to pay someone else to find them a date
probably means that dating services are a normal good. As a consequence this is
likely to be a less prevalent practice in poorer countries where there are lower
incomes and a decreased ability and willingness to pay.
11. What does it mean for a good to have a perfectly elastic demand? Draw a demand curve
of this type. Explain why it has the shape that it does.
If a product has a perfectly elastic demand, this means that the quantity demanded
will drop to zero if the price rises. This implies that the demand curve will be
horizontal. At any price higher than P1, quantity demanded will be zero.
Price
Demand
P1
Q
Diff: 1 Skill: Conceptual Topic: perfectly elastic demand
AACSB:
12. Compare and contrast the two demand curves depicted in the graph below.
The figure on the left shows a perfectly inelastic demand curve. Price elasticity of
demand is zero. Quantity demanded is fixed; it does not change at all when price
changes. The figure on the right shows a perfectly elastic demand curve. A tiny price
increase drives the quantity demanded to zero. In essence, perfectly elastic demand
implies that individual producers can sell all they want at the going market price
but cannot charge a higher price.
13. In many large American cities it is common to witness private motorists pulling up to
municipal bus stations and allowing perfect strangers to ride into downtown with them in
order to take advantage of the high occupancy vehicle lanes that require two or more
drivers. Using the concept of elasticity of demand and total revenue explain why public
transit authorities might be concerned with this practice.
Public transit authorities may be concerned about this practice because it provides a
very good substitute for their services and may make municipal bus service more
price elastic and could have a deleterious impact on the revenue generated by the
public transit system.
mid all the excitement of the first day of the “Buckshot” War,
December 4, 1837, at the moment Governor Joseph Ritner had
issued his proclamation calling upon the people to disperse the
lawless element and to add further excitement, the State
Arsenal was seized by friends of the Governor, where large
quantities of powder and cartridges were stored. The
proclamation and call for troops and the seizure of the arsenal filled the
city of Harrisburg with intense alarm.
William Cochran, Sheriff of Dauphin County, issued a proclamation in
which he stated that at no time had there been any riotous proceedings,
nor any disturbances which rendered necessary his interposition as a civil
officer to preserve peace.
The following day, December 5, the Governor made a requisition on
Major General Robert Patterson, commanding the First Division
Pennsylvania Militia to furnish sufficient of his command to “quell this
insurrection.”
General Patterson obtained from the Frankford Arsenal a supply of the
regular ammunition for infantry, which was then buckshot. About a
hundred of General Patterson’s command arrived in Harrisburg, on
Saturday night, December 8, and the next afternoon 800 troops arrived.
They were paraded through the streets to the public grounds in front of
the State Arsenal.
The general and his staff reported to the Governor. The door was
locked and barred, and the general could not gain admittance until the
Governor learned from a second-story window who was seeking an
entrance.
The Governor sent for his Cabinet, and five responded. They asked the
General many questions, among others, if he would obey an order of the
Speaker of the Senate, to which he replied in the negative. He said he
had not come on a political mission, and anyway, would not sustain a
party clearly in the wrong.
He was asked if he would obey an order from the Speaker of the
House. He replied he would not, for two reasons: They had two
Speakers, he did not know the right one, and he would not obey the
regular Speaker anyway, as he had no right to give him an order. He said
he would obey only the Governor, and then only when the Governor
gave him an order he had a right to give.
General Patterson refused to help seat either Speaker. He said the
House alone could do that. If ordered to fire, he would refuse to issue the
order. Nor would he permit a single shot to be fired except in self-
defense, if assailed by the rebels, or in the protection of public property.
The conference ended abruptly.
The Governor had called upon Captain Sumner, then in command of
the Carlisle Barracks, for troops, but he refused to send them to interfere
in political troubles.
Governor Ritner also wrote to President Van Buren, laying before him
a full account of the affair, requesting the President to take such
measures as would protect the State against violence. The Governor
named several Government officials who were active in the trouble.
The Governor’s party finding they could not get General Patterson to
install them in power, his troops were ordered home and a requisition
was made upon Major General Alexander, of the Eleventh Division of
State Militia, a citizen of Carlisle, and an ultra-Whig in politics.
Out of three companies only sixty-seven men responded. The
battalion, under the command of Colonel Willis Foulk, marched from
Carlisle to Harrisburg, December 15, arriving on the following day.
There never had been occasion for soldiers and now as the Carlisle
troops arrived the disturbance in the Legislature was nearing an end. The
soldiers regarded the trip as a frolic.
On December 17 Messrs. Butler and Sturdevant, of Luzerne, and
Montelius, of Union County, three legally elected Whig members,
abandoned their Anti-Masonic associates and were sworn in as members
of the “Hopkins House,” which gave it a legal quorum over and above
the eight Democrats from Philadelphia whose rights the “Rump House”
disputed.
Finally on December 27, Mr. Michler, of Northampton County,
submitted a resolution which recognized that the House was now legally
organized, and it was adopted, by the close vote of seventeen yeas to
sixteen nays.
The committee called for in the resolution was named and waited on
the Governor, informing him the Legislature was organized.
With this reconciliation the returns were opened and read; the
amendment to the Constitution was declared carried and the election of
David R. Porter as Governor of the Commonwealth promulgated.
However, the animosity still existed, and resulted in the appointment by
both Houses of select committees to inquire into the causes of the
disturbances and other matters.
Mr. Stevens, the ring leader, refused at first to be reconciled, and
absented himself several months from the sessions of the House. It was
not until May 8 that his colleague in the House announced that Mr.
Stevens was now in his seat and ready to take the requisite qualifications.
Objection was made, and a resolution offered declaring that Mr.
Stevens had “forfeited that right by act in violation of the laws of the
land, by contempt to the House, and by the virtual resignation of his
character as a representative.” Action was postponed.
On the following day Mr. Stevens again appeared, and, through his
colleague, demanded that the oath be administered. This was on motion
postponed by a vote of forty-eight to thirty. Two days afterward Mr.
Stevens appeared a third time, but by a vote of fifty-three to thirty-three
the question was postponed, and a committee appointed to examine
whether he had not forfeited his right to a seat as a member.
On the 20th this committee reported that he was “not entitled” to his
seat.
The House, however, by declaring his seat vacant, caused an election,
when Mr. Stevens was again returned and appearing, was duly qualified.
Mr. Penrose, the Speaker of the Senate, issued a manifesto “To the
People of the State,” explaining his participation in the proceedings of
December 4.
Subsequently a number of pamphlets appeared, chiefly of the facetious
class, which attempted to make a farce of what might have resulted in a
very serious affair. One of these severely criticized Secretary Burrowes
for withholding the correct and legal returns; Speaker Penrose for the
violation of his duty; the six Senators who were denounced as traitors
and the last paragraph was:
“Finally, if the leaders of the party who claimed to be ‘all the
decency,’ and were the first to cry out mob, had behaved themselves
honorably and honestly there would have been no ‘Buckshot War,’ and
perhaps they would not have so soon been compelled to witness the 'Last
Kick of Anti-Masonry.'”
The piper was now to pay and it took many years to heal the political
sores. The Anti-Masonic crusade had come to an end, and from that date
Masonry and Odd Fellowship, those “twin sisters of iniquity,” as
Thaddeus Stevens designated them, thrived more than ever. The term
“Buckshot War,” was a thorn in the side of its leaders.
he City of Philadelphia had not been laid out one year until it
was visited by a fire, the sufferers being some recently arrived
Germans and for whose relief a subscription was made.
From this time until 1696 no public precautions seem to
have been taken against fire. In the latter year the Provincial
Assembly passed a law for preventing accidents that might
happen by fire in the towns of Philadelphia and New Castle, by which
persons were forbidden to fire their chimneys to cleanse them, or suffer
them to be so foul as to take fire, under a penalty of forty shillings, and
each house owner was required to provide and keep ready a swab twelve
or fourteen feet long, and a bucket or pail, under a penalty of ten
shillings.
No person should presume to smoke tobacco in the streets, either by
day or night, under a penalty of twelve pence. All such fines were to be
used to buy leather buckets and other instruments or engines against fires
for the public use.
An act was passed in 1700, applying to Philadelphia, Bristol,
Germantown, Darby and Chester, which provided for two leather
buckets, and forbade more than six pounds of powder to be kept in any
house or shop, unless forty perches distant from any dwelling house,
under the penalty of ten pounds. A year later the magistrates were
directed to procure “six or eight good hooks for tearing down houses on
fire.”
As the city grew, fires became more frequent, through faulty
constructed chimneys and the general use of wood for fuel. Mayor
Samuel Preston in 1711 recommended the purchase of buckets, hooks
and an engine. In December, 1718, the City Council purchased of
Abraham Bickley a fire engine he had imported from England for £50.
This fire engine was then in Bethlehem. It was the first fire engine
purchased by the city of Philadelphia.
The first “great fire” took place between 10 and 11 o’clock on the
night of April 24, 1730. The fire started in a store along the wharf and
burned several stores under one roof, two cooper shops and an immense
quantity of staves on King Street, and two new tenement houses, all
owned by Mr. Fishbourne; a new house of Mr. Plumstead’s; John
Dickinson’s fine new house, and Captain Anthony’s house. Several other
buildings were damaged and much property fell prey to thieves.
This disastrous fire made the whole population realize that new fire-
fighting apparatus was needed. The City Council at once ordered three
fire engines and 400 leather buckets to be purchased in England and
provided twenty ladders and twenty-five hooks and axes.
A year elapsed, however, before two of the engines and 250 buckets
were received, and Mayor Hassel directed one to be stationed in the yard
of the Friends’ Meeting House, Second and Market Streets, and the other
on the lot of Francis Jones, corner Second and Walnut Streets.
The old Bickley engine was stationed in the yard of the Baptist
Church, on Second near Arch Street. As late as 1771 only six fire
engines comprised the entire force of the city.
A third engine was built in Philadelphia by Anthony Nichols, in 1733,
and other buckets were manufactured there. This is the first fire engine
ever built in Pennsylvania.
At a fire in January, 1733, this engine threw a stream higher than any
other engine had been able to do, but Nichols was not given another
order because his price was too high, he had “used wood instead of brass
and they feared it would not last long.”
In December, 1733, there appeared in Franklin’s Pennsylvania Gazette
an article on fires and their origin, and the mode of putting them out.
Another article suggested that public pumps should be built, and gave a
plan for the organization of a club or society for putting out fires, after
the manner of one in Boston.
Franklin was the author of both articles, and they caused such interest
that a project of forming such a company was soon undertaken. Thirty
joined the association, and every member was obliged to keep in order
and fit for service a certain number of buckets. They were to meet
monthly and discuss topics which might be useful in their conduct at
fires.
The advantages of the association were so apparent they became so
numerous as to include quite all the inhabitants who were men of
property.
Out of this movement started by Benjamin Franklin was organized the
Union Fire Company, December 7, 1736, this being the first fire
company in Philadelphia. Among the early members were Franklin,
Isaac Paschal, Philip Syng, William Rawle and Samuel Powell.
The second company was the Fellowship Fire Company, organized
March 1, 1738; the third the Hand-in-Hand, organized March 1, 1742;
the fourth the Heart-in-Hand, organized February 22, 1743; the fifth the
Friendship, organized July 30, 1747; the sixth the Britannia, organized in
1750.
Richard Mason in 1768 manufactured engines which were operated by
levers at the ends instead of the side of the engine. These were
successful, and he continued to produce his engines until 1801.
Patrick Lyon, about 1794, became the greatest fire-engine builder,
when he invented an engine which would throw more water and with
greater force than the others. He built fire engines as late as 1824. The
“Reliance” and “Old Diligent,” built by him, performed useful service
until the introduction of steam fire engines in 1855.
The first truly great fire in Philadelphia occurred July 9, 1850, when
367 houses were destroyed on Delaware Avenue, near Vine Street.
On November 12, 1851, three lives were lost in a fire which destroyed
Bruner’s cotton factory.
The borough of Somerset was almost totally destroyed in 1833, and
again on May 9, 1872. In the latter conflagration 117 buildings were
destroyed.
On April 10, 1845, the city of Pittsburgh was visited by its first great
fire, which burned over a space of fifty-six acres of the business and
residential section.
December 15, 1850, the greater portion of the borough of Carbondale
was wiped out.
Chambersburg suffered first in Stuart’s rebel raid, October 10, 1862,
and again when General McCausland destroyed the beautiful Franklin
County seat, July 30, 1864.
Selinsgrove was visited by a terrible fire February 22, 1872, and
another fire almost wiped out the town October 30, 1874.
Mifflintown suffered by a great fire in 1871, again on August 23,
1873, and the borough of Milton was almost destroyed May 14, 1880,
when 644 houses and business blocks were burned from noon until 4
o’clock in the afternoon.
Washington’s Headquarters in Several Bucks
County Mansions Began December
8, 1776