Question 1

If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could

Accepted Answer

A)  survey competitors and ask them what they think demand elasticity is for the product. 
B)  talk to its customers. 
C)  change price a little bit and observe what happens to total revenue. 
D)  not do anything as there is no way to find an elasticity value. 
A)  survey competitors and ask them what they think demand elasticity is for the product. 
B)  talk to its customers. 
C)  change price a little bit and observe what happens to total revenue. 
D)  not do anything as there is no way to find an elasticity value.

Question 2

The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be

Accepted Answer

A)  positive if subscribers consider the services substitutes for each other. 
B)  positive if subscribers consider the services complements to each other. 
C)  negative if subscribers consider the services substitutes for each other. 
D)  negative no matter if subscribers consider the services substitutes or complements for each other. 
A)  positive if subscribers consider the services substitutes for each other. 
B)  positive if subscribers consider the services complements to each other. 
C)  negative if subscribers consider the services substitutes for each other. 
D)  negative no matter if subscribers consider the services substitutes or complements for each other.

Question 3

Suppose a decrease in the supply of wheat results in an increase in revenue. This indicates that

Accepted Answer

A)  the decrease in quantity sold is proportionately larger than the resulting change in price. 
B)  the resulting increase in price is proportionately greater than decrease in quantity sold. 
C)  the demand curve for wheat must be vertical. 
D)  the supply curve for wheat must be vertical. 
A)  the decrease in quantity sold is proportionately larger than the resulting change in price. 
B)  the resulting increase in price is proportionately greater than decrease in quantity sold. 
C)  the demand curve for wheat must be vertical. 
D)  the supply curve for wheat must be vertical.

Question 4

If the demand for iPods is price elastic, then

Accepted Answer

A)  the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B)  the percentage change in quantity demanded is less than the percentage change in price (in absolute value). 
C)  the percentage change in quantity demanded is equal to the percentage change in price. 
D)  quantity demanded is not responsive to changes in price. 
A)  the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B)  the percentage change in quantity demanded is less than the percentage change in price (in absolute value). 
C)  the percentage change in quantity demanded is equal to the percentage change in price. 
D)  quantity demanded is not responsive to changes in price.

Question 5

Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore

Accepted Answer

A)  the demand for salt will be perfectly inelastic. 
B)  salt is a normal good. 
C)  the demand for salt is relatively inelastic. 
D)  the price elasticity of demand for salt is greater than 1 (in absolute value). 
A)  the demand for salt will be perfectly inelastic. 
B)  salt is a normal good. 
C)  the demand for salt is relatively inelastic. 
D)  the price elasticity of demand for salt is greater than 1 (in absolute value).

Question 6

A study of the effects of the minimum wage on employment of low-skilled workers estimated the price elasticity of demand for low-skilled workers is -0.75. Suppose that the government is considering raising the minimum wage from $7.25 per hour to $7.75 per hour. Based on this information, calculate the percentage change in the employment of low skilled workers. Use the midpoint formula.

Accepted Answer

percent ch

Question 7

Figure 6-10  
-Refer to Figure 6-10. A perfectly elastic supply curve is shown in

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D. 
A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D.

Question 8

Carrie Bradshaw claims that when it comes to buying shoes, "price is no object." If this is true, then her demand for shoes is

Accepted Answer

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

Question 9

If the market for a product is narrowly defined, then there are likely to be many substitutes for the product and the demand for the product is relatively elastic.

Accepted Answer

A) True 
 B)False

Question 10

An article in the Wall Street Journal noted the following: Instead of relying on a full-coach, round-trip unrestricted fare of about $2,000 between Cleveland and Los Angeles ...Continental [Airlines] since June has offered a $716 unrestricted fare in that market .... Through October, the test resulted in about the same revenue that Continental thinks it would have collected with its higher fare. Source: Scott McCartney, "Airlines Try Cutting Business Fares, Find They Don't Lose Revenue," Wall Street Journal, November 22, 2002.
What is the absolute value of the price elasticity of demand on this airline route?

Accepted Answer

A)  0 
B)  less than 1 
C)  greater than 1 
D)  approximately 1 
A)  0 
B)  less than 1 
C)  greater than 1 
D)  approximately 1

Question 11

Linesha, a college student working part-time received a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information

Accepted Answer

A)  DVDs and Blu-ray discs are substitutes. 
B)  Blu-ray discs are normal goods and DVDs are inferior goods. 
C)  DVDs and Blu-ray discs are normal goods. 
D)  the cross-price elasticity between DVDs and Blu-ray discs is negative. 
A)  DVDs and Blu-ray discs are substitutes. 
B)  Blu-ray discs are normal goods and DVDs are inferior goods. 
C)  DVDs and Blu-ray discs are normal goods. 
D)  the cross-price elasticity between DVDs and Blu-ray discs is negative.

Question 12

Suppose the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1. Increasing ticket prices will increase the total revenue from ticket sales.

Accepted Answer

A) True 
 B)False

Question 13

Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil?

Accepted Answer

A)  The elasticity coefficient is likely to be very high and supply is inelastic. 
B)  The elasticity coefficient is likely to be close to zero and supply is perfectly elastic. 
C)  The elasticity coefficient is likely to be low and supply is highly inelastic. 
D)  The elasticity coefficient is likely to be low and supply is highly elastic. 
A)  The elasticity coefficient is likely to be very high and supply is inelastic. 
B)  The elasticity coefficient is likely to be close to zero and supply is perfectly elastic. 
C)  The elasticity coefficient is likely to be low and supply is highly inelastic. 
D)  The elasticity coefficient is likely to be low and supply is highly elastic.

Question 14

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

Accepted Answer

A)  A wide variety of substitutes are available for the good. 
B)  The time period under consideration is short. 
C)  The good is a necessity. 
D)  The expenditure on the good is small relative to one's budget. 
A)  A wide variety of substitutes are available for the good. 
B)  The time period under consideration is short. 
C)  The good is a necessity. 
D)  The expenditure on the good is small relative to one's budget.

Question 15

Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long-run price elasticity of supply for oil?

Accepted Answer

A)  The elasticity coefficient is likely to be higher in the long run than in the short run. 
B)  The elasticity coefficient is likely to be lower in the long run than in the short run. 
C)  The elasticity coefficient approaches 0 in the long run as supplies are depleted. 
D)  The elasticity coefficient is unstable in the long run because oil supplies may be depleted. 
A)  The elasticity coefficient is likely to be higher in the long run than in the short run. 
B)  The elasticity coefficient is likely to be lower in the long run than in the short run. 
C)  The elasticity coefficient approaches 0 in the long run as supplies are depleted. 
D)  The elasticity coefficient is unstable in the long run because oil supplies may be depleted.

Question 16

List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.

Accepted Answer

1. Availability of close substitutes: If

Question 17

A soda tax is more effective at reducing soda consumption when demand is price ________ and is more effective at raising tax revenue when demand is price ________.

Accepted Answer

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

Question 18

To calculate the price elasticity of supply, we divide

Accepted Answer

A)  the percentage change in price by the percentage change in quantity supplied. 
B)  the percentage change in quantity supplied by the percentage change in price. 
C)  rise by the run. 
D)  the average price by the average quantity supplied. 
A)  the percentage change in price by the percentage change in quantity supplied. 
B)  the percentage change in quantity supplied by the percentage change in price. 
C)  rise by the run. 
D)  the average price by the average quantity supplied.

Question 19

A newspaper story on the effect of higher milk prices on the market for ice cream contained the following: "As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year. . . . And ice cream consumption is down 3 percent."
Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001.
Based on the information given, what is the price elasticity of demand for ice cream?

Accepted Answer

A)  0.75 (in absolute value) 
B)  1.33 (in absolute value) 
C)  12% 
D)  We do not have enough information to calculate the elasticity. 
A)  0.75 (in absolute value) 
B)  1.33 (in absolute value) 
C)  12% 
D)  We do not have enough information to calculate the elasticity.

Question 20

Since 1950, there has been a substantial increase in wheat production. The increase in production has led to a decrease in the price of wheat because of which of the following factors?

Accepted Answer

A)  The absolute value of the price elasticity of demand for wheat is less than 1 and the income elasticity of demand for wheat is greater than 1. 
B)  The absolute value of the price elasticity of demand for wheat is greater than 1 and wheat is a close substitute for other food products. 
C)  The absolute value of the price elasticity of demand for wheat is less than 1 and the income elasticity of demand for wheat is low. 
D)  The income elasticity of demand for wheat is high and wheat is an inferior good. 
A)  The absolute value of the price elasticity of demand for wheat is less than 1 and the income elasticity of demand for wheat is greater than 1. 
B)  The absolute value of the price elasticity of demand for wheat is greater than 1 and wheat is a close substitute for other food products. 
C)  The absolute value of the price elasticity of demand for wheat is less than 1 and the income elasticity of demand for wheat is low. 
D)  The income elasticity of demand for wheat is high and wheat is an inferior good.

Exam 6: Elasticity: the Responsiveness of Demand and Supply

If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could

The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be

Suppose a decrease in the supply of wheat results in an increase in revenue. This indicates that

If the demand for iPods is price elastic, then

Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore

Figure 6-10 -Refer to Figure 6-10. A perfectly elastic supply curve is shown in

Carrie Bradshaw claims that when it comes to buying shoes, "price is no object." If this is true, then her demand for shoes is

If the market for a product is narrowly defined, then there are likely to be many substitutes for the product and the demand for the product is relatively elastic.

Linesha, a college student working part-time received a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information

Suppose the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1. Increasing ticket prices will increase the total revenue from ticket sales.

Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil?

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long-run price elasticity of supply for oil?

List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.

A soda tax is more effective at reducing soda consumption when demand is price ________ and is more effective at raising tax revenue when demand is price ________.

To calculate the price elasticity of supply, we divide

Since 1950, there has been a substantial increase in wheat production. The increase in production has led to a decrease in the price of wheat because of which of the following factors?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

A soda tax is more effective at reducing soda consumption when demand is price and is more effective at raising tax revenue when demand is price .