Question 1

If two linear supply curves run through a common point, then at any given quantity the curve that is flatter is more elastic.

Accepted Answer

A) True 
 B)False

Question 2

The elasticity of demand measures:

Accepted Answer

A)  the height of the demand curve. 
B)  how sensitive the quantity demanded is to a change in price. 
C)  how sensitive the price is to a change in demand. 
D)  the extent to which demand shifts in response to supply changes. 
A)  the height of the demand curve. 
B)  how sensitive the quantity demanded is to a change in price. 
C)  how sensitive the price is to a change in demand. 
D)  the extent to which demand shifts in response to supply changes.

Question 3

Which of the following mostly likely has a perfectly inelastic supply curve?

Accepted Answer

A)  seeds for fruit trees 
B)  health insurance 
C)  prehistoric cave paintings 
D)  Star Wars movies 
A)  seeds for fruit trees 
B)  health insurance 
C)  prehistoric cave paintings 
D)  Star Wars movies

Question 4

If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent causes the quantity supplied of it to:

Accepted Answer

A)  rise 20 percent. 
B)  fall 20 percent. 
C)  rise 1.25 percent. 
D)  fall 1.25 percent. 
A)  rise 20 percent. 
B)  fall 20 percent. 
C)  rise 1.25 percent. 
D)  fall 1.25 percent.

Question 5

All of the following would cause the supply curve to be more elastic EXCEPT:

Accepted Answer

A)  production of the good requires only a small share of the market for inputs. 
B)  the good is primarily for local supply. 
C)  the good is a manufactured good. 
D)  there is potential difficulty to increasing the production of the good at constant unit cost. 
A)  production of the good requires only a small share of the market for inputs. 
B)  the good is primarily for local supply. 
C)  the good is a manufactured good. 
D)  there is potential difficulty to increasing the production of the good at constant unit cost.

Question 6

If the price elasticity of demand is 2 in absolute value, then when the price of Good X rises by 25 percent:

Accepted Answer

A)  the quantity demanded of it rises by 50 percent. 
B)  the quantity demanded of it falls by 50 percent. 
C)  the quantity demanded of it rises by 12.5 percent. 
D)  the quantity demanded of it falls by 12.5 percent. 
A)  the quantity demanded of it rises by 50 percent. 
B)  the quantity demanded of it falls by 50 percent. 
C)  the quantity demanded of it rises by 12.5 percent. 
D)  the quantity demanded of it falls by 12.5 percent.

Question 7

The flatter the demand curve, the less is the elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 8

Supply tends to be ________ in local markets, and ________ in global markets.

Accepted Answer

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

Question 9

If the elasticity of supply is 2.0, what happens to quantity supplied following a 7 percent increase in price? Quantity supplied increases:

Accepted Answer

A)  3.5 percent. 
B)  2.9 percent. 
C)  14 percent. 
D)  9 percent. 
A)  3.5 percent. 
B)  2.9 percent. 
C)  14 percent. 
D)  9 percent.

Question 10

Use the following to answer questions: Figure: Slave Redemption  
-(Figure: Slave Redemption) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. When slave redeemers enter the market, the price of slaves:

Accepted Answer

A)  increases to $40. 
B)  decreases to $17. 
C)  stays unchanged at $40. 
D)  exceeds $40. 
A)  increases to $40. 
B)  decreases to $17. 
C)  stays unchanged at $40. 
D)  exceeds $40.

Question 11

Suppose that large oil reserves are discovered off the coast of Cuba, and these reserves will increase the world's supply of oil by 2.5 percent. If the elasticity of demand and supply of oil are 0.50 and 0.40, respectively, what happens to the price of oil?

Accepted Answer

A)  It falls by 2.5 percent. 
B)  It falls by 25 percent. 
C)  It falls by 2.78 percent. 
D)  It falls by 36 percent. 
A)  It falls by 2.5 percent. 
B)  It falls by 25 percent. 
C)  It falls by 2.78 percent. 
D)  It falls by 36 percent.

Question 12

Consider a market that is described by the equations Qd = 10 - 0.5P, and Qs = -2 + 1.5P. What is the equilibrium price? What is the equilibrium quantity? If the demand curve shifts and the new demand equation is 8 - 0.5P, what are the new equilibrium price and the new equilibrium quantity? Calculate the price elasticity of supply. Is the supply curve between price and price 2 inelastic or elastic?

Accepted Answer

10 - 0.5P = -2+1.5P
12 = 2P
P = $6 and Q

Question 13

The long-run demand for oil ______ the short-run demand for oil.

Accepted Answer

A)  is more elastic than 
B)  is less elastic than 
C)  is equally elastic to 
D)  differs in elasticity in an indeterminate direction compared with 
A)  is more elastic than 
B)  is less elastic than 
C)  is equally elastic to 
D)  differs in elasticity in an indeterminate direction compared with

Question 14

In The Beautiful Tree, Dr. James Tooley describes how he found, in developing country after developing country, countless private schools aimed at educating the poor's children. The schools are completely self-funded, relying on tuition to pay salaries and upkeep. Although the teachers are effective, the schools are very basic: large playgrounds and modern building construction are very rare. Based on this information, what is the elasticity of the supply of schools?

Accepted Answer

A)  Elastic, because these schools only exist in the short run. 
B)  Elastic, because these schools are relatively easy to establish. 
C)  Inelastic, because these schools are located all over the world. 
D)  Inelastic, because these schools must negotiate with teacher unions. 
A)  Elastic, because these schools only exist in the short run. 
B)  Elastic, because these schools are relatively easy to establish. 
C)  Inelastic, because these schools are located all over the world. 
D)  Inelastic, because these schools must negotiate with teacher unions.

Question 15

Economists categorize price elasticity of demand greater than 1 as:

Accepted Answer

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

Question 16

If the price elasticity of demand for cigarettes is -0.50 and the price of cigarettes increases 10 percent, the quantity demanded of cigarettes decreases by 50 percent.

Accepted Answer

A) True 
 B)False

Question 17

If the demand for a good is inelastic, then:

Accepted Answer

A)  revenues increase when the price goes up. 
B)  revenues decrease when the price goes up. 
C)  any change in price is matched by an equal and opposite percentage change in quantity, so revenues stay the same. 
D)  revenues decrease regardless of the direction of the price change. 
A)  revenues increase when the price goes up. 
B)  revenues decrease when the price goes up. 
C)  any change in price is matched by an equal and opposite percentage change in quantity, so revenues stay the same. 
D)  revenues decrease regardless of the direction of the price change.

Question 18

The supply of guitars in Alabama is more elastic than the supply of guitars in the United States.

Accepted Answer

A) True 
 B)False

Question 19

All of the following conditions would cause the demand curve for a good to be more elastic EXCEPT:

Accepted Answer

A)  a longer time horizon. 
B)  the good is considered a luxury good. 
C)  the price of the good falls. 
D)  the good has many substitutes. 
A)  a longer time horizon. 
B)  the good is considered a luxury good. 
C)  the price of the good falls. 
D)  the good has many substitutes.

Question 20

There are ______ substitutes for oil, so the elasticity of demand for oil is ______ elastic.

Accepted Answer

A)  few; very 
B)  few; not very 
C)  many; perfectly 
D)  many; very 
A)  few; very 
B)  few; not very 
C)  many; perfectly 
D)  many; very

Exam 5: Elasticity and Its Applications

If two linear supply curves run through a common point, then at any given quantity the curve that is flatter is more elastic.

The elasticity of demand measures:

Which of the following mostly likely has a perfectly inelastic supply curve?

If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent causes the quantity supplied of it to:

All of the following would cause the supply curve to be more elastic EXCEPT:

If the price elasticity of demand is 2 in absolute value, then when the price of Good X rises by 25 percent:

The flatter the demand curve, the less is the elasticity of demand.

Supply tends to be ________ in local markets, and ________ in global markets.

If the elasticity of supply is 2.0, what happens to quantity supplied following a 7 percent increase in price? Quantity supplied increases:

Use the following to answer questions: Figure: Slave Redemption -(Figure: Slave Redemption) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. When slave redeemers enter the market, the price of slaves:

Suppose that large oil reserves are discovered off the coast of Cuba, and these reserves will increase the world's supply of oil by 2.5 percent. If the elasticity of demand and supply of oil are 0.50 and 0.40, respectively, what happens to the price of oil?

The long-run demand for oil ______ the short-run demand for oil.

Economists categorize price elasticity of demand greater than 1 as:

If the price elasticity of demand for cigarettes is -0.50 and the price of cigarettes increases 10 percent, the quantity demanded of cigarettes decreases by 50 percent.

If the demand for a good is inelastic, then:

The supply of guitars in Alabama is more elastic than the supply of guitars in the United States.

All of the following conditions would cause the demand curve for a good to be more elastic EXCEPT:

There are ______ substitutes for oil, so the elasticity of demand for oil is ______ elastic.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

Supply tends to be in local markets, and in global markets.

There are substitutes for oil, so the elasticity of demand for oil is elastic.