Question 1

Holding all other forces constant,if decreasing the price of a good leads to a decrease in total revenue,then the demand for the good must be

Accepted Answer

A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct because a price increase always leads to an increase in total revenue. 
A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct because a price increase always leads to an increase in total revenue.

Question 2

If the price elasticity of demand for a good is 0.2,then a 3 percent decrease in price results in a

Accepted Answer

A)  0.6 percent increase in the quantity demanded. 
B)  1.5 percent increase in the quantity demanded. 
C)  2 percent increase in the quantity demanded. 
D)  6 percent increase in the quantity demanded. 
A)  0.6 percent increase in the quantity demanded. 
B)  1.5 percent increase in the quantity demanded. 
C)  2 percent increase in the quantity demanded. 
D)  6 percent increase in the quantity demanded.

Question 3

If demand is perfectly inelastic,the demand curve is vertical,and the price elasticity of demand equals 0.

Accepted Answer

A) True 
 B)False

Question 4

If the cross-price elasticity of demand for two goods is negative,then the two goods are complements.

Accepted Answer

A) True 
 B)False

Question 5

If the cross-price elasticity of demand for two goods is 1.25,then

Accepted Answer

A)  the two goods are luxuries. 
B)  the two goods are substitutes. 
C)  one of the goods is normal and the other good is inferior. 
D)  the demand for one of the goods conforms to the law of demand,but the demand for the other good violates the law of demand. 
A)  the two goods are luxuries. 
B)  the two goods are substitutes. 
C)  one of the goods is normal and the other good is inferior. 
D)  the demand for one of the goods conforms to the law of demand,but the demand for the other good violates the law of demand.

Question 6

Holding all other factors constant and using the midpoint method,if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60,then supply is

Accepted Answer

A)  inelastic,since the price elasticity of supply is equal to .91. 
B)  inelastic,since the price elasticity of supply is equal to 1.1. 
C)  elastic,since the price elasticity of supply is equal to 0.91. 
D)  elastic,since the price elasticity of supply is equal to 1.1. 
A)  inelastic,since the price elasticity of supply is equal to .91. 
B)  inelastic,since the price elasticity of supply is equal to 1.1. 
C)  elastic,since the price elasticity of supply is equal to 0.91. 
D)  elastic,since the price elasticity of supply is equal to 1.1.

Question 7

Which of the following is likely to have the most price elastic demand?

Accepted Answer

A)  dental floss 
B)  milk 
C)  salt 
D)  diamond earrings 
A)  dental floss 
B)  milk 
C)  salt 
D)  diamond earrings

Question 8

In January the price of dark chocolate candy bars was $2.00,and Willy's Chocolate Factory produced 80 pounds.In February the price of dark chocolate candy bars was $2.50,and Willy's produced 110 pounds.In March the price of dark chocolate candy bars was $3.00,and Willy's produced 140 pounds.The price elasticity of supply of Willy's dark chocolate candy bars was about

Accepted Answer

A)  0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from $2.50 to $3.00. 
B)  0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from $2.50 to $3.00. 
C)  1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00. 
D)  1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from $2.50 to $3.00. 
A)  0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from $2.50 to $3.00. 
B)  0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from $2.50 to $3.00. 
C)  1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00. 
D)  1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from $2.50 to $3.00.

Question 9

Elasticity of demand is closely related to the slope of the demand curve.The less responsive buyers are to a change in price,the

Accepted Answer

A)  steeper the demand curve will be. 
B)  flatter the demand curve will be. 
C)  further to the right the demand curve will sit. 
D)  closer to the vertical axis the demand curve will sit. 
A)  steeper the demand curve will be. 
B)  flatter the demand curve will be. 
C)  further to the right the demand curve will sit. 
D)  closer to the vertical axis the demand curve will sit.

Question 10

As we move downward and to the right along a linear,downward-sloping demand curve,

Accepted Answer

A)  both slope and elasticity remain constant. 
B)  slope changes but elasticity remains constant. 
C)  both slope and elasticity change. 
D)  slope remains constant but elasticity changes. 
A)  both slope and elasticity remain constant. 
B)  slope changes but elasticity remains constant. 
C)  both slope and elasticity change. 
D)  slope remains constant but elasticity changes.

Question 11

If the demand curve is linear and downward sloping,which of the following statements is not correct?

Accepted Answer

A)  Demand is more elastic on the lower part of the demand curve than on the upper part. 
B)  Different pairs of points on the demand curve can result in different values of the price elasticity of demand. 
C)  Different pairs of points on the demand curve result in identical values of the slope of the demand curve. 
D)  Starting from a point on the upper part of the demand curve,an increase in price leads to a decrease in total revenue. 
A)  Demand is more elastic on the lower part of the demand curve than on the upper part. 
B)  Different pairs of points on the demand curve can result in different values of the price elasticity of demand. 
C)  Different pairs of points on the demand curve result in identical values of the slope of the demand curve. 
D)  Starting from a point on the upper part of the demand curve,an increase in price leads to a decrease in total revenue.

Question 12

If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts,the price elasticity of supply approaches

Accepted Answer

A)  zero,and the supply curve is horizontal. 
B)  zero,and the supply curve is vertical. 
C)  infinity,and the supply curve is horizontal. 
D)  infinity,and the supply curve is vertical. 
A)  zero,and the supply curve is horizontal. 
B)  zero,and the supply curve is vertical. 
C)  infinity,and the supply curve is horizontal. 
D)  infinity,and the supply curve is vertical.

Question 13

Suppose that demand is inelastic within a certain price range.For that price range,

Accepted Answer

A)  an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price. 
B)  an increase in price would decrease total revenue because the decrease in quantity demanded is proportionately greater than the increase in price. 
C)  a decrease in price would increase total revenue because the increase in quantity demanded is proportionately smaller than the decrease in price. 
D)  a decrease in price would not affect total revenue. 
A)  an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price. 
B)  an increase in price would decrease total revenue because the decrease in quantity demanded is proportionately greater than the increase in price. 
C)  a decrease in price would increase total revenue because the increase in quantity demanded is proportionately smaller than the decrease in price. 
D)  a decrease in price would not affect total revenue.

Question 14

Last year,Shelley bought 6 pairs of designer jeans when her income was $40,000.This year,her income is $50,000,and she purchased 10 pairs of designer jeans.Holding other factors constant,it follows that Shelley

Accepted Answer

A)  considers designer jeans to be a necessity. 
B)  considers designer jeans to be an inferior good. 
C)  considers designer jeans to be a normal good. 
D)  has a low price elasticity of demand for jeans. 
A)  considers designer jeans to be a necessity. 
B)  considers designer jeans to be an inferior good. 
C)  considers designer jeans to be a normal good. 
D)  has a low price elasticity of demand for jeans.

Question 15

A city wants to raise revenues to build a new municipal swimming pool next year.The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues.The city manager suggests that the city lower the price of admission to raise revenues.Who is correct?

Accepted Answer

A)  Both the mayor and city manager would be correct if demand were price elastic. 
B)  Both the mayor and city manager would be correct if demand were price inelastic. 
C)  The mayor would be correct if demand were price elastic;the city manager would be correct if demand were price inelastic. 
D)  The mayor would be correct if demand were price inelastic;the city manager would be correct if demand were price elastic. 
A)  Both the mayor and city manager would be correct if demand were price elastic. 
B)  Both the mayor and city manager would be correct if demand were price inelastic. 
C)  The mayor would be correct if demand were price elastic;the city manager would be correct if demand were price inelastic. 
D)  The mayor would be correct if demand were price inelastic;the city manager would be correct if demand were price elastic.

Question 16

Between 1950 and today there was a

Accepted Answer

A)  20 percent drop in the number of farmers,but farm output more than tripled. 
B)  30 percent drop in the number of farmers,but farm output more than tripled. 
C)  50 percent drop in the number of farmers,but farm output more than doubled. 
D)  70 percent drop in the number of farmers,but farm output more than doubled. 
A)  20 percent drop in the number of farmers,but farm output more than tripled. 
B)  30 percent drop in the number of farmers,but farm output more than tripled. 
C)  50 percent drop in the number of farmers,but farm output more than doubled. 
D)  70 percent drop in the number of farmers,but farm output more than doubled.

Question 17

Table 5-5
  
-Refer to Table 5-5.Which of the three supply curves represents the least elastic supply?

Accepted Answer

A)  supply curve A 
B)  supply curve B 
C)  supply curve C 
D)  There is no difference in the elasticity of the three supply curves. 
A)  supply curve A 
B)  supply curve B 
C)  supply curve C 
D)  There is no difference in the elasticity of the three supply curves.

Question 18

The production of methamphetamine (meth)is a social problem in the Midwest.Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs.Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth.Assuming that each program were successful,which of the following statements is correct?

Accepted Answer

A)  Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. 
B)  Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. 
C)  Both Operation Methbust and Say No would reduce the equilibrium quantity of meth;Operation Methbust would increase the equilibrium price,whereas Say No would reduce the equilibrium price of meth. 
D)  Both Operation Methbust and Say No would reduce the equilibrium price of meth;Operation Methbust would reduce the equilibrium quantity,whereas Say No would increase the equilibrium quantity of meth. 
A)  Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. 
B)  Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. 
C)  Both Operation Methbust and Say No would reduce the equilibrium quantity of meth;Operation Methbust would increase the equilibrium price,whereas Say No would reduce the equilibrium price of meth. 
D)  Both Operation Methbust and Say No would reduce the equilibrium price of meth;Operation Methbust would reduce the equilibrium quantity,whereas Say No would increase the equilibrium quantity of meth.

Question 19

Farm programs that pay farmers not to plant crops on all their land

Accepted Answer

A)  hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some food items. 
B)  help farmers by cutting costs,which helps consumers by lowering food prices. 
C)  help farmers by increasing total revenue in the market but hurt consumers by raising food prices. 
D)  help farmers directly since they receive government payments but have no real effects on consumers. 
A)  hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some food items. 
B)  help farmers by cutting costs,which helps consumers by lowering food prices. 
C)  help farmers by increasing total revenue in the market but hurt consumers by raising food prices. 
D)  help farmers directly since they receive government payments but have no real effects on consumers.

Question 20

Consider the following pairs of goods.For which of the two goods would you expect the demand to be more price elastic? Why?
a.water or diamonds
b.insulin or nasal decongestant spray
c.food in general or breakfast cereal
d.gasoline over the course of a week or gasoline over the course of a year
e.personal computers or IBM personal computers

Accepted Answer

a.Diamonds are luxuries,and water is a n

Exam 5: Elasticity and Its Application

Holding all other forces constant,if decreasing the price of a good leads to a decrease in total revenue,then the demand for the good must be

If the price elasticity of demand for a good is 0.2,then a 3 percent decrease in price results in a

If demand is perfectly inelastic,the demand curve is vertical,and the price elasticity of demand equals 0.

If the cross-price elasticity of demand for two goods is negative,then the two goods are complements.

If the cross-price elasticity of demand for two goods is 1.25,then

Holding all other factors constant and using the midpoint method,if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60,then supply is

Which of the following is likely to have the most price elastic demand?

Elasticity of demand is closely related to the slope of the demand curve.The less responsive buyers are to a change in price,the

As we move downward and to the right along a linear,downward-sloping demand curve,

If the demand curve is linear and downward sloping,which of the following statements is not correct?

If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts,the price elasticity of supply approaches

Suppose that demand is inelastic within a certain price range.For that price range,

Last year,Shelley bought 6 pairs of designer jeans when her income was $40,000.This year,her income is $50,000,and she purchased 10 pairs of designer jeans.Holding other factors constant,it follows that Shelley

Between 1950 and today there was a

Table 5-5 -Refer to Table 5-5.Which of the three supply curves represents the least elastic supply?

Farm programs that pay farmers not to plant crops on all their land

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply,demand,and Government Policies

Consumers,producers,and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Market for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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