Question 1

For a given reduction in the supply of oil, the equilibrium price of oil will

Accepted Answer

A)  decrease by a larger amount for a higher price elasticity of demand. 
B)  decrease by a smaller amount for a higher price elasticity of demand. 
C)  increase by a larger amount for a higher price elasticity of demand. 
D)  increase by a smaller amount for a higher price elasticity of demand. 
E)  not change, regardless of the price elasticity of demand. 
A)  decrease by a larger amount for a higher price elasticity of demand. 
B)  decrease by a smaller amount for a higher price elasticity of demand. 
C)  increase by a larger amount for a higher price elasticity of demand. 
D)  increase by a smaller amount for a higher price elasticity of demand. 
E)  not change, regardless of the price elasticity of demand.

Question 2

If a $1 increase in price changes quantity demanded by 4 units, the price elasticity of demand

Accepted Answer

A)  must equal .25 percent. 
B)  must equal 4 percent. 
C)  must equal 1/4. 
D)  cannot be calculated with this information. 
E)  must equal 4. 
A)  must equal .25 percent. 
B)  must equal 4 percent. 
C)  must equal 1/4. 
D)  cannot be calculated with this information. 
E)  must equal 4.

Question 3

One reason the demand for electricity is probably more price elastic than the demand for table salt is that

Accepted Answer

A)  people react to a change in the price of electricity in the long run but react to a change in the price of salt in the short run. 
B)  there are more substitutes for electricity than for table salt. 
C)  people react to a change in the price of electricity in the short run but react to a change in the price of salt in the long run. 
D)  a change in the price of electricity is likely to be temporary compared to a change in the price of table salt. 
E)  electricity takes up a larger proportion of one's income than does table salt. 
A)  people react to a change in the price of electricity in the long run but react to a change in the price of salt in the short run. 
B)  there are more substitutes for electricity than for table salt. 
C)  people react to a change in the price of electricity in the short run but react to a change in the price of salt in the long run. 
D)  a change in the price of electricity is likely to be temporary compared to a change in the price of table salt. 
E)  electricity takes up a larger proportion of one's income than does table salt.

Question 4

A product with an elastic demand means that

Accepted Answer

A)  consumers are relatively insensitive to a change in the quantity demanded. 
B)  consumers are relatively insensitive to a change in the price of the product. 
C)  consumers are relatively sensitive to a change in the price of the product. 
D)  producers are relatively insensitive to a change in the price of the product. 
E)  producers are relatively sensitive to a change in the quantity demanded. 
A)  consumers are relatively insensitive to a change in the quantity demanded. 
B)  consumers are relatively insensitive to a change in the price of the product. 
C)  consumers are relatively sensitive to a change in the price of the product. 
D)  producers are relatively insensitive to a change in the price of the product. 
E)  producers are relatively sensitive to a change in the quantity demanded.

Question 5

The midpoint formula for calculating price elasticity of demand gives the same answer, regardless of the direction of the price change.

Accepted Answer

A) True 
 B)False

Question 6

The price elasticity of demand measures the change in quantity demanded given a dollar change in price.

Accepted Answer

A) True 
 B)False

Question 7

Because people can adapt to paying higher prices over time, the price elasticity of demand is lower in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 8

If the demand for bananas has a high price elasticity, then a 5 percent decrease in the price of bananas will result in

Accepted Answer

A)  a more than 5 percent increase in the quantity demanded. 
B)  a less than 5 percent increase in the quantity demanded. 
C)  no change in the quantity demanded. 
D)  a more than 5 percent decrease in the quantity demanded. 
E)  a less than 5 percent decrease in the quantity demanded. 
A)  a more than 5 percent increase in the quantity demanded. 
B)  a less than 5 percent increase in the quantity demanded. 
C)  no change in the quantity demanded. 
D)  a more than 5 percent decrease in the quantity demanded. 
E)  a less than 5 percent decrease in the quantity demanded.

Question 9

If a 1 percent change in price results in a 5 percent change in quantity demanded, then

Accepted Answer

A)  the price elasticity of demand is 5. 
B)  the slope of the demand curve is 1/5. 
C)  the slope of the demand curve is 5. 
D)  the price elasticity of demand is 1/5. 
E)  there is not enough information to calculate slope or elasticity. 
A)  the price elasticity of demand is 5. 
B)  the slope of the demand curve is 1/5. 
C)  the slope of the demand curve is 5. 
D)  the price elasticity of demand is 1/5. 
E)  there is not enough information to calculate slope or elasticity.

Question 10

A price floor would result in a(n)

Accepted Answer

A)  surplus. 
B)  shortage. 
C)  increase in equilibrium price. 
D)  decrease in equilibrium price. 
E)  shift of the demand curve to the right. 
A)  surplus. 
B)  shortage. 
C)  increase in equilibrium price. 
D)  decrease in equilibrium price. 
E)  shift of the demand curve to the right.

Question 11

If the supply curve is perfectly elastic, then an increase in demand results in no change in the

Accepted Answer

A)  equilibrium quantity but a large increase in the equilibrium price. 
B)  equilibrium quantity but a large decrease in the equilibrium price. 
C)  equilibrium price but a decrease in the equilibrium quantity equal to the change in demand. 
D)  equilibrium price but an increase in the equilibrium quantity equal to the change in demand. 
E)  equilibrium quantity or the equilibrium price. 
A)  equilibrium quantity but a large increase in the equilibrium price. 
B)  equilibrium quantity but a large decrease in the equilibrium price. 
C)  equilibrium price but a decrease in the equilibrium quantity equal to the change in demand. 
D)  equilibrium price but an increase in the equilibrium quantity equal to the change in demand. 
E)  equilibrium quantity or the equilibrium price.

Question 12

The price elasticity of supply is always negative.

Accepted Answer

A) True 
 B)False

Question 13

If a 1 percent decrease in the price of steak results in a 2 percent increase in the quantity demanded for steak, then the price elasticity of the demand for steak is

Accepted Answer

A)  2 cents. 
B)  2 pounds of steak. 
C)  2 percent. 
D)  $2. 
E)  2. 
A)  2 cents. 
B)  2 pounds of steak. 
C)  2 percent. 
D)  $2. 
E)  2.

Question 14

If 12 candy bars are demanded at $.30 each and 4 candy bars are demanded at $.50 each, what is the price elasticity of demand using the midpoint formula?

Accepted Answer

A)  2 
B)  .5 
C)  7.5 
D)  .4 
E)  1.67 
A)  2 
B)  .5 
C)  7.5 
D)  .4 
E)  1.67

Question 15

Because tea and coffee are substitutes, their cross-price elasticity must be

Accepted Answer

A)  less than 1. 
B)  less than 0. 
C)  equal to 0. 
D)  positive. 
E)  infinity. 
A)  less than 1. 
B)  less than 0. 
C)  equal to 0. 
D)  positive. 
E)  infinity.

Question 16

When supply shifts, supply elasticity affects the changes in equilibrium price and quantity.

Accepted Answer

A) True 
 B)False

Question 17

By knowing how much quantity demanded changes for a given change in price, we can also know

Accepted Answer

A)  exactly which individuals will or will not continue to buy a good whose price has increased. 
B)  how much quantity supplied changes for a given change in price. 
C)  how much price changes when the amount of a good available for sale changes. 
D)  how much supply changes for a given change in price. 
E)  how much demand changes for a given change in price. 
A)  exactly which individuals will or will not continue to buy a good whose price has increased. 
B)  how much quantity supplied changes for a given change in price. 
C)  how much price changes when the amount of a good available for sale changes. 
D)  how much supply changes for a given change in price. 
E)  how much demand changes for a given change in price.

Question 18

If a 3 percent change in price results in a 1.5 percent change in quantity demanded, then the price elasticity of demand is ____ and demand is ____.

Accepted Answer

A)  1/2; inelastic 
B)  1/2; elastic 
C)  2; inelastic 
D)  1; unit elastic 
E)  2; elastic 
A)  1/2; inelastic 
B)  1/2; elastic 
C)  2; inelastic 
D)  1; unit elastic 
E)  2; elastic

Question 19

Suppose the price of a good falls from $4.95 to $3.85, and the quantity demanded changes from 77 units to 99 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit-elastic.

Accepted Answer

The answer of Suppose the price of a good falls...

Question 20

The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.

Accepted Answer

A) True 
 B)False

Exam 4: Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

For a given reduction in the supply of oil, the equilibrium price of oil will

If a $1 increase in price changes quantity demanded by 4 units, the price elasticity of demand

One reason the demand for electricity is probably more price elastic than the demand for table salt is that

A product with an elastic demand means that

The midpoint formula for calculating price elasticity of demand gives the same answer, regardless of the direction of the price change.

The price elasticity of demand measures the change in quantity demanded given a dollar change in price.

Because people can adapt to paying higher prices over time, the price elasticity of demand is lower in the long run than in the short run.

If the demand for bananas has a high price elasticity, then a 5 percent decrease in the price of bananas will result in

If a 1 percent change in price results in a 5 percent change in quantity demanded, then

A price floor would result in a(n)

If the supply curve is perfectly elastic, then an increase in demand results in no change in the

The price elasticity of supply is always negative.

If a 1 percent decrease in the price of steak results in a 2 percent increase in the quantity demanded for steak, then the price elasticity of the demand for steak is

If 12 candy bars are demanded at $.30 each and 4 candy bars are demanded at $.50 each, what is the price elasticity of demand using the midpoint formula?

Because tea and coffee are substitutes, their cross-price elasticity must be

When supply shifts, supply elasticity affects the changes in equilibrium price and quantity.

By knowing how much quantity demanded changes for a given change in price, we can also know

If a 3 percent change in price results in a 1.5 percent change in quantity demanded, then the price elasticity of demand is ____ and demand is ____.

Suppose the price of a good falls from $4.95 to $3.85, and the quantity demanded changes from 77 units to 99 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit-elastic.

The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Capital and Financial Markets

Economic Growth and Globalization

International Trade

International Finance

Reading, Understanding, and Creating Graphs

the Miracle of Compound Growth

Present Discounted Value

Deriving the Growth Accounting Formula

Filters

If a 3 percent change in price results in a 1.5 percent change in quantity demanded, then the price elasticity of demand is and demand is .