Question 1

Explain why the availability of resources affects the elasticity of supply.

Accepted Answer

A good that can be produced using common

Question 2

-The number of taxicabs in Motorville and the taxicab fares are regulated. The fare currently charged is $5 a ride. Motorville taxicab drivers want to obtain government's permission to raise the fare to increase their revenues and ask you to be their economic adviser. After studying the market, you come up with the following demand schedule for taxicab rides:
a) Calculate the price elasticity of demand for taxicab rides as the fare rises from $5 to $6. (Use the midpoint method in your calculations.) Is the demand price elastic or inelastic for this fare rise?
b) What happens to the taxicab drivers' total revenue if the fare rises from $5 to $6? How can you use your answers in part a to answer this question? Should the drivers try to obtain permission to raise the fare?
c) Calculate the price elasticity of demand for taxicab rides as the fare falls from $5 to $4. (Use the midpoint method in your calculations.) Is the demand price elastic or inelastic for this fare decrease?
d) What happens to the taxicab drivers' total revenue if the fare falls from $5 to $4? How can you use your answers in part c to answer this question? Should the drivers try to obtain permission to lower the fare?
e) What fare will maximize the taxicab drivers' total revenue? Explain.

Accepted Answer

a) When the fare rises from $5 to $6, th

Question 3

Joe likes peanut butter and jelly sandwiches for lunch. We can conclude that for Joe the cross elasticity of demand for peanut butter with respect to jelly is

Accepted Answer

A)  positive because jelly and peanut butter are substitutes. 
B)  positive because jelly and peanut butter are complements. 
C)  negative because jelly and peanut butter are substitutes. 
D)  negative because jelly and peanut butter are complements. 
A)  positive because jelly and peanut butter are substitutes. 
B)  positive because jelly and peanut butter are complements. 
C)  negative because jelly and peanut butter are substitutes. 
D)  negative because jelly and peanut butter are complements.

Question 4

Demand is price elastic if a

Accepted Answer

A)  relatively large price increase leads to a relatively small decrease in the quantity demanded. 
B)  relatively small price increase leads to a relatively large decrease in the quantity demanded. 
C)  price increase leads to a decrease in the quantity demanded. 
D)  price increase leads to an increase in the quantity demanded. 
A)  relatively large price increase leads to a relatively small decrease in the quantity demanded. 
B)  relatively small price increase leads to a relatively large decrease in the quantity demanded. 
C)  price increase leads to a decrease in the quantity demanded. 
D)  price increase leads to an increase in the quantity demanded.

Question 5

How are the cross elasticity of demand and income elasticity of demand similar and how are they different from the price elasticity of demand?

Accepted Answer

The cross and income elasticities are si

Question 6

-The figure above represents the behavior of total revenue as price falls along a straight-line demand curve. Unit elasticity of demand occurs at

Accepted Answer

A)  point g. 
B)  point h. 
C)  point i. 
D)  point j. 
A)  point g. 
B)  point h. 
C)  point i. 
D)  point j.

Question 7

A determinant of the price elasticity of supply is the extent to which

Accepted Answer

A)  consumers like the quality of the good. 
B)  the demand for the good is relatively elastic. 
C)  the good has many consumer substitutes. 
D)  production of the good uses commonly available resources. 
A)  consumers like the quality of the good. 
B)  the demand for the good is relatively elastic. 
C)  the good has many consumer substitutes. 
D)  production of the good uses commonly available resources.

Question 8

Suppose a drought increased the price of corn by 25 percent while it decreased the quantity by 50 percent. The price elasticity of demand equals

Accepted Answer

A)  2.00. 
B)  0.50. 
C)  20.0. 
D)  Zero. 
A)  2.00. 
B)  0.50. 
C)  20.0. 
D)  Zero.

Question 9

Price elasticity of demand is a units-free measure.

Accepted Answer

A) True 
 B)False

Question 10

Netflix is the largest online DVD rental service offering flat rate online streaming to customers in the United States. Currently, there are approximately 8 million subscribers. Suppose Netflix decreases its flat rate rental by 10 percent and an additional 1 million people subscribe. This information means that Netflix's demand is

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  perfectly elastic. 
A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  perfectly elastic.

Question 11

The demand for Honda Accords is probably

Accepted Answer

A)  inelastic but more elastic than the demand for automobiles. 
B)  elastic and more elastic than the demand for automobiles. 
C)  inelastic and less elastic than the demand for automobiles. 
D)  elastic but less elastic than the demand for automobiles. 
A)  inelastic but more elastic than the demand for automobiles. 
B)  elastic and more elastic than the demand for automobiles. 
C)  inelastic and less elastic than the demand for automobiles. 
D)  elastic but less elastic than the demand for automobiles.

Question 12

-The above figure shows the demand curve for movie rentals from Blockbuster. If Blockbuster lowered its price from $1.50 to $1.00, then total revenue would ________ because demand is ________.

Accepted Answer

A)  decrease; elastic 
B)  increase; elastic 
C)  decrease; inelastic 
D)  increase; inelastic 
A)  decrease; elastic 
B)  increase; elastic 
C)  decrease; inelastic 
D)  increase; inelastic

Question 13

The income elasticity of demand is ________ for a normal good and ________ for an inferior good.

Accepted Answer

A)  positive; positive 
B)  positive; negative 
C)  negative; positive 
D)  negative; negative 
A)  positive; positive 
B)  positive; negative 
C)  negative; positive 
D)  negative; negative

Question 14

Dell lowers the price of their PCs by 10 percent. As a result, the quantity of Gateway computers demanded at the current price decreases by 12 percent. What is the cross elasticity of demand for Gateway computers with respect to the price of Dell computers?

Accepted Answer

A)  -1.20 
B)  -0.83 
C)  1.20 
D)  0.83 
A)  -1.20 
B)  -0.83 
C)  1.20 
D)  0.83

Question 15

A straight-line demand curve with negative slope intersects the horizontal axis at 100 tons per week. At the midpoint on the demand curve (corresponding to 50 tons per week) the price elasticity of demand is

Accepted Answer

A)  0. 
B)  0.5. 
C)  1.0. 
D)  unknown without more information. 
A)  0. 
B)  0.5. 
C)  1.0. 
D)  unknown without more information.

Question 16

The demand for ________ is more elastic than the demand for ________.

Accepted Answer

A)  chewing gum; cars 
B)  all personal computers; Dell computers 
C)  Pepsi; all soft beverages 
D)  food; exotic vacations 
A)  chewing gum; cars 
B)  all personal computers; Dell computers 
C)  Pepsi; all soft beverages 
D)  food; exotic vacations

Question 17

The cross elasticity of demand measures the responsiveness of the quantity demanded of a particular good to changes in the prices of

Accepted Answer

A)  its substitutes and its complements. 
B)  its substitutes but not its complements. 
C)  its complements but not its substitutes. 
D)  neither its substitutes nor its complements. 
A)  its substitutes and its complements. 
B)  its substitutes but not its complements. 
C)  its complements but not its substitutes. 
D)  neither its substitutes nor its complements.

Question 18

The elasticity of demand for Gateway computers is probably

Accepted Answer

A)  inelastic and smaller than the elasticity of demand for computers overall. 
B)  elastic and smaller than the elasticity of demand for computers overall. 
C)  inelastic but larger than the elasticity of demand for computers overall. 
D)  elastic and larger than the elasticity of demand for computers overall. 
A)  inelastic and smaller than the elasticity of demand for computers overall. 
B)  elastic and smaller than the elasticity of demand for computers overall. 
C)  inelastic but larger than the elasticity of demand for computers overall. 
D)  elastic and larger than the elasticity of demand for computers overall.

Question 19

Can electric utility companies always raise their total revenue by raising their rates?

Accepted Answer

No. As electric companies continue to ra

Question 20

If the price elasticity of demand for clothing is 0.64, this implies that

Accepted Answer

A)  a 6.4 percent increase in price the price of clothing leads to a 10 percent decrease in the quantity demanded. 
B)  a 10 percent increase in the price of clothing leads to a 6.4 percent decrease in the quantity demanded. 
C)  if there is an increase in the price of clothing the total expenditures on clothing decreases. 
D)  Both answers A and C are correct. 
A)  a 6.4 percent increase in price the price of clothing leads to a 10 percent decrease in the quantity demanded. 
B)  a 10 percent increase in the price of clothing leads to a 6.4 percent decrease in the quantity demanded. 
C)  if there is an increase in the price of clothing the total expenditures on clothing decreases. 
D)  Both answers A and C are correct.

Exam 4: Elasticity

Explain why the availability of resources affects the elasticity of supply.

Joe likes peanut butter and jelly sandwiches for lunch. We can conclude that for Joe the cross elasticity of demand for peanut butter with respect to jelly is

Demand is price elastic if a

How are the cross elasticity of demand and income elasticity of demand similar and how are they different from the price elasticity of demand?

-The figure above represents the behavior of total revenue as price falls along a straight-line demand curve. Unit elasticity of demand occurs at

A determinant of the price elasticity of supply is the extent to which

Suppose a drought increased the price of corn by 25 percent while it decreased the quantity by 50 percent. The price elasticity of demand equals

Price elasticity of demand is a units-free measure.

The demand for Honda Accords is probably

-The above figure shows the demand curve for movie rentals from Blockbuster. If Blockbuster lowered its price from $1.50 to $1.00, then total revenue would ________ because demand is ________.

The income elasticity of demand is ________ for a normal good and ________ for an inferior good.

Dell lowers the price of their PCs by 10 percent. As a result, the quantity of Gateway computers demanded at the current price decreases by 12 percent. What is the cross elasticity of demand for Gateway computers with respect to the price of Dell computers?

A straight-line demand curve with negative slope intersects the horizontal axis at 100 tons per week. At the midpoint on the demand curve (corresponding to 50 tons per week) the price elasticity of demand is

The demand for ________ is more elastic than the demand for ________.

The cross elasticity of demand measures the responsiveness of the quantity demanded of a particular good to changes in the prices of

The elasticity of demand for Gateway computers is probably

Can electric utility companies always raise their total revenue by raising their rates?

If the price elasticity of demand for clothing is 0.64, this implies that

What Is Economics

The Economic Problem

Demand and Supply

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

-The above figure shows the demand curve for movie rentals from Blockbuster. If Blockbuster lowered its price from $1.50 to $1.00, then total revenue would because demand is .

The income elasticity of demand is for a normal good and for an inferior good.

The demand for is more elastic than the demand for .