Question 1

Exhibit 5-7   Which of the following is true between points g and h in Exhibit 5-7?

Accepted Answer

A) Total revenue remains constant at $180. 
B) Total revenue falls by $12. 
C) Total revenue falls by $60. 
D) Total revenue falls by $180. 
E) Demand is elastic. 
A) Total revenue remains constant at $180. 
B) Total revenue falls by $12. 
C) Total revenue falls by $60. 
D) Total revenue falls by $180. 
E) Demand is elastic.

Question 2

One group of people uses New York City subways only during rush hour to travel to and from work.Another group uses them only in midday for leisure activity.If New York City wants to increase transit fares with the smallest possible reduction in revenue, for which group should it increase the fare?

Accepted Answer

A) The rush-hour group because its demand for subway service is more elastic than that of the midday group. 
B) The rush-hour group because its demand for subway service is less elastic than that of the midday group. 
C) The midday group because its demand for subway service is more elastic than that of the rush-hour group. 
D) The midday group because its demand for subway service is less elastic than that of the rush-hour group. 
E) It doesn't matter because both groups have the same elasticity of demand. 
A) The rush-hour group because its demand for subway service is more elastic than that of the midday group. 
B) The rush-hour group because its demand for subway service is less elastic than that of the midday group. 
C) The midday group because its demand for subway service is more elastic than that of the rush-hour group. 
D) The midday group because its demand for subway service is less elastic than that of the rush-hour group. 
E) It doesn't matter because both groups have the same elasticity of demand.

Question 3

Farm output per worker in the United States has increased since 1950 because

Accepted Answer

A) of technological improvements 
B) there are more farms 
C) there are fewer acres of land per farm 
D) the supply of farm products is inelastic 
E) of a decrease in government subsidies 
A) of technological improvements 
B) there are more farms 
C) there are fewer acres of land per farm 
D) the supply of farm products is inelastic 
E) of a decrease in government subsidies

Question 4

If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then, according to the midpoint formula, the value of price elasticity of demand for Pepsi-Cola is

Accepted Answer

A) -0.5 
B) -0.25 
C) -1 
D) -3 
E) -2 
A) -0.5 
B) -0.25 
C) -1 
D) -3 
E) -2

Question 5

An indication that the economy is in recession, e.g., a rise in the number of used clothing stores for babies, suggests that

Accepted Answer

A) used clothes for babies are a necessity 
B) used clothes for babies are an inferior good 
C) used clothes for babies are a normal good 
D) new clothes for babies are a luxury 
E) used clothes for babies have price-elastic demand 
A) used clothes for babies are a necessity 
B) used clothes for babies are an inferior good 
C) used clothes for babies are a normal good 
D) new clothes for babies are a luxury 
E) used clothes for babies have price-elastic demand

Question 6

The absolute value of the price elasticity of demand at the midpoint of a linear demand curve is always

Accepted Answer

A) greater than one 
B) less than one 
C) one 
D) zero 
E) infinity 
A) greater than one 
B) less than one 
C) one 
D) zero 
E) infinity

Question 7

Exhibit 5-13   Which of the following is true of the demand curve in Exhibit 5-13?

Accepted Answer

A) Its slope is 0, and the value of elasticity is negative infinity. 
B) Its slope is infinite, and the value of elasticity is 0. 
C) Both its slope and the value of elasticity are 0. 
D) Both its slope and the value of elasticity are negative infinity. 
E) Its slope is 0, and demand is unit elastic. 
A) Its slope is 0, and the value of elasticity is negative infinity. 
B) Its slope is infinite, and the value of elasticity is 0. 
C) Both its slope and the value of elasticity are 0. 
D) Both its slope and the value of elasticity are negative infinity. 
E) Its slope is 0, and demand is unit elastic.

Question 8

Price elasticity of demand and price elasticity of supply are both influenced by

Accepted Answer

A) the availability of close substitutes for the product 
B) the proportion of the consumer's budget spend on the product 
C) the length of the adjustment period considered 
D) technological conditions such as the additional costs of increasing production 
E) none of the above 
A) the availability of close substitutes for the product 
B) the proportion of the consumer's budget spend on the product 
C) the length of the adjustment period considered 
D) technological conditions such as the additional costs of increasing production 
E) none of the above

Question 9

If the managers of a theater plan to raise ticket prices to increase ticket revenues, then they must believe that demand is

Accepted Answer

A) elastic 
B) inelastic 
C) unit elastic 
D) perfectly elastic 
E) income elastic 
A) elastic 
B) inelastic 
C) unit elastic 
D) perfectly elastic 
E) income elastic

Question 10

Which of the following will cause demand to be relatively elastic?

Accepted Answer

A) There are few substitutes 
B) The time interval is relatively long 
C) The good is considered a necessity 
D) The good involves a relatively small portion of the consumers' budget 
E) The time interval is relatively short 
A) There are few substitutes 
B) The time interval is relatively long 
C) The good is considered a necessity 
D) The good involves a relatively small portion of the consumers' budget 
E) The time interval is relatively short

Question 11

Exhibit 5-8   Which of the following statements is true in the range of the total revenue curve labeled A in Exhibit 5-8?

Accepted Answer

A) Demand is elastic. 
B) Demand is inelastic. 
C) Demand is unit elastic. 
D) We cannot tell anything about elasticity of demand because this is a total revenue curve. 
E) Demand is perfectly elastic. 
A) Demand is elastic. 
B) Demand is inelastic. 
C) Demand is unit elastic. 
D) We cannot tell anything about elasticity of demand because this is a total revenue curve. 
E) Demand is perfectly elastic.

Question 12

Which of the following describes a situation in which demand must be elastic?

Accepted Answer

A) Total revenue increases by 15 percent when the price of corndogs rises by 15 percent. 
B) Total revenue increases by less than 15 percent when the price of corndogs rises by 15 percent. 
C) Total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent. 
D) Total revenue increases by $15 when the price of corndogs rises by $15. 
E) Total revenue increases by more than $15 when the price of corndogs rises by $15. 
A) Total revenue increases by 15 percent when the price of corndogs rises by 15 percent. 
B) Total revenue increases by less than 15 percent when the price of corndogs rises by 15 percent. 
C) Total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent. 
D) Total revenue increases by $15 when the price of corndogs rises by $15. 
E) Total revenue increases by more than $15 when the price of corndogs rises by $15.

Question 13

If an increase in the price of peanut butter causes a decline in the demand for jelly, then

Accepted Answer

A) the goods are substitutes 
B) jelly is an inferior good 
C) the goods are complements 
D) both goods are inelastic 
E) peanut butter is an inferior good 
A) the goods are substitutes 
B) jelly is an inferior good 
C) the goods are complements 
D) both goods are inelastic 
E) peanut butter is an inferior good

Question 14

In the real world, demand is not likely to be perfectly inelastic at every price because

Accepted Answer

A) no substitutes exist for some goods 
B) some consumers will be unable to afford very high prices with given incomes 
C) at low prices, consumers always want a lot 
D) consumers are willing to pay any price for certain goods 
E) the prices of certain goods don't change 
A) no substitutes exist for some goods 
B) some consumers will be unable to afford very high prices with given incomes 
C) at low prices, consumers always want a lot 
D) consumers are willing to pay any price for certain goods 
E) the prices of certain goods don't change

Question 15

Price elasticity is unit elastic at the midpoint of a linear, downward-sloping demand curve.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 5-4   Demand in Exhibit 5-4 is

Accepted Answer

A) unit elastic 
B) somewhat elastic 
C) perfectly elastic 
D) somewhat inelastic 
E) perfectly inelastic 
A) unit elastic 
B) somewhat elastic 
C) perfectly elastic 
D) somewhat inelastic 
E) perfectly inelastic

Question 17

As price decreases along a linear demand curve, price elasticity of demand decreases.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 5-20   Consider Exhibit 5-20.Between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?

Accepted Answer

A) S1 is most elastic; S2 is least elastic. 
B) S1 is most elastic; S3 is least elastic. 
C) S3 is most elastic; S1 is least elastic. 
D) S3 is most elastic; S2 is least elastic. 
E) S2 is most elastic; S3 is least elastic. 
A) S1 is most elastic; S2 is least elastic. 
B) S1 is most elastic; S3 is least elastic. 
C) S3 is most elastic; S1 is least elastic. 
D) S3 is most elastic; S2 is least elastic. 
E) S2 is most elastic; S3 is least elastic.

Question 19

The ability of increasing quantity supplied in response to a higher price is identical across industries.

Accepted Answer

A) True 
 B)False

Question 20

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is

Accepted Answer

A) elastic 
B) inelastic 
C) unit elastic 
D) suggestive of an inferior good 
E) equal to -20 
A) elastic 
B) inelastic 
C) unit elastic 
D) suggestive of an inferior good 
E) equal to -20

Exam 5: Elasticity of Demand and Supply

Exhibit 5-7 Which of the following is true between points g and h in Exhibit 5-7?

One group of people uses New York City subways only during rush hour to travel to and from work.Another group uses them only in midday for leisure activity.If New York City wants to increase transit fares with the smallest possible reduction in revenue, for which group should it increase the fare?

Farm output per worker in the United States has increased since 1950 because

If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then, according to the midpoint formula, the value of price elasticity of demand for Pepsi-Cola is

An indication that the economy is in recession, e.g., a rise in the number of used clothing stores for babies, suggests that

The absolute value of the price elasticity of demand at the midpoint of a linear demand curve is always

Exhibit 5-13 Which of the following is true of the demand curve in Exhibit 5-13?

Price elasticity of demand and price elasticity of supply are both influenced by

If the managers of a theater plan to raise ticket prices to increase ticket revenues, then they must believe that demand is

Which of the following will cause demand to be relatively elastic?

Exhibit 5-8 Which of the following statements is true in the range of the total revenue curve labeled A in Exhibit 5-8?

Which of the following describes a situation in which demand must be elastic?

If an increase in the price of peanut butter causes a decline in the demand for jelly, then

In the real world, demand is not likely to be perfectly inelastic at every price because

Price elasticity is unit elastic at the midpoint of a linear, downward-sloping demand curve.

Exhibit 5-4 Demand in Exhibit 5-4 is

As price decreases along a linear demand curve, price elasticity of demand decreases.

Exhibit 5-20 Consider Exhibit 5-20.Between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?

The ability of increasing quantity supplied in response to a higher price is identical across industries.

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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