Question 1

The fundamental determinant of the elasticity of supply is:

Accepted Answer

A)  how many substitute goods exist. 
B)  the price of the good. 
C)  how quickly the per-unit cost of production increases with an increase in production. 
D)  the rate of change of quantity demanded as compared to the quantity supplied. 
A)  how many substitute goods exist. 
B)  the price of the good. 
C)  how quickly the per-unit cost of production increases with an increase in production. 
D)  the rate of change of quantity demanded as compared to the quantity supplied.

Question 2

If the price of cocoa rises by 20 percent, the quantity supplied of cocoa rises by 4 percent. What is the elasticity of supply?

Accepted Answer

A)  5 
B)  2 
C)  0.2 
D)  0.008 
A)  5 
B)  2 
C)  0.2 
D)  0.008

Question 3

Marge tutors English students. If she raises rates, her revenues increase. Brad tutors biology students. If he lowers rates, his revenues increase. Which of the following is TRUE?

Accepted Answer

A)  Marge's demand is elastic, and Brad's demand is inelastic. 
B)  Marge's demand is inelastic, and Brad's demand is elastic. 
C)  Marge's demand is elastic, and Brad's demand is elastic. 
D)  Marge's demand is inelastic, and Brad's demand is inelastic. 
A)  Marge's demand is elastic, and Brad's demand is inelastic. 
B)  Marge's demand is inelastic, and Brad's demand is elastic. 
C)  Marge's demand is elastic, and Brad's demand is elastic. 
D)  Marge's demand is inelastic, and Brad's demand is inelastic.

Question 4

Both the elasticities of demand and supply tend to be more elastic in the long-run.

Accepted Answer

A) True 
 B)False

Question 5

The supply of ______ tends to be more elastic.

Accepted Answer

A)  luxury goods 
B)  raw materials 
C)  necessary goods 
D)  manufactured goods 
A)  luxury goods 
B)  raw materials 
C)  necessary goods 
D)  manufactured goods

Question 6

If the price of a good increases from $200 to $250 and quantity supplied increases from 200 units to 400 units, the supply would be classified as elastic.

Accepted Answer

A) True 
 B)False

Question 7

Economic theory suggests that gun buyback programs:

Accepted Answer

A)  are effective in reducing the number of guns on city streets. 
B)  do not reduce the number of guns on city streets. 
C)  are most effective if the supply curve of guns is perfectly elastic. 
D)  reduce the demand for new and better-functioning guns. 
A)  are effective in reducing the number of guns on city streets. 
B)  do not reduce the number of guns on city streets. 
C)  are most effective if the supply curve of guns is perfectly elastic. 
D)  reduce the demand for new and better-functioning guns.

Question 8

The demand curve is elastic if an increase in price reduces the quantity demanded by only a little.

Accepted Answer

A) True 
 B)False

Question 9

The elasticity of demand measures how responsive the price of a good is to a change in the demand.

Accepted Answer

A) True 
 B)False

Question 10

Compared to the 1980s, the price of computer chips is much lower today and revenues from computer chips are _____ because demand is _____.

Accepted Answer

A)  higher; elastic 
B)  lower; inelastic 
C)  approximately unchanged; unit elastic 
D)  higher; inelastic 
A)  higher; elastic 
B)  lower; inelastic 
C)  approximately unchanged; unit elastic 
D)  higher; inelastic

Question 11

Nobel prize-winning economist Gary Becker suggested prohibited drugs should be legalized and then taxed. This would _____ the seller's cost and _____ government revenue.

Accepted Answer

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

Question 12

In regards to the criminalization of drugs, Nobel prize-winning economist Gary Becker suggested:

Accepted Answer

A)  raising the capital gains tax to help provide more government resources for the war on drugs. 
B)  that the government should make drugs legal and then place a tax on drugs to control their usage. 
C)  subsidizing the consumption of illegal drugs in an effort to avoid deadweight losses. 
D)  All of the answers are correct. 
A)  raising the capital gains tax to help provide more government resources for the war on drugs. 
B)  that the government should make drugs legal and then place a tax on drugs to control their usage. 
C)  subsidizing the consumption of illegal drugs in an effort to avoid deadweight losses. 
D)  All of the answers are correct.

Question 13

Most people, when asked, cannot name the price of a canister of table salt at the grocery store within a factor of 25 percent. Which elasticity argument explains why?

Accepted Answer

A)  Table salt has many substitutes; demand is highly elastic. 
B)  Expenditures on table salt make up a tiny fraction of the average person's budget; demand is highly inelastic. 
C)  Most people make their salt consumption decisions in the short run. 
D)  People are loyal to their specific brands of salt. 
A)  Table salt has many substitutes; demand is highly elastic. 
B)  Expenditures on table salt make up a tiny fraction of the average person's budget; demand is highly inelastic. 
C)  Most people make their salt consumption decisions in the short run. 
D)  People are loyal to their specific brands of salt.

Question 14

The demand curve for Froot Loops breakfast cereal is very elastic because:

Accepted Answer

A)  most breakfast cereals are considered a luxury good. 
B)  there are many good substitutes for Froot Loops. 
C)  the demand curve is negatively sloped. 
D)  it is one of the most advertised cereals in the world. 
A)  most breakfast cereals are considered a luxury good. 
B)  there are many good substitutes for Froot Loops. 
C)  the demand curve is negatively sloped. 
D)  it is one of the most advertised cereals in the world.

Question 15

If a 4 percent increase in the price of pepper results in a 1 percent decrease in pepper sales, what is the absolute value of the price elasticity of demand for pepper? Is it elastic or inelastic?

Accepted Answer

A)  4; elastic 
B)  0.25; elastic 
C)  4; inelastic 
D)  0.25; inelastic 
A)  4; elastic 
B)  0.25; elastic 
C)  4; inelastic 
D)  0.25; inelastic

Question 16

If Major League Baseball ticket prices rise by 15 percent, the number of tickets sold falls by 5 percent. The elasticity of demand is:

Accepted Answer

A)  -3. 
B)  -1/3. 
C)  -7.5. 
D)  -0.75. 
A)  -3. 
B)  -1/3. 
C)  -7.5. 
D)  -0.75.

Question 17

If an increase in the price of oil by 10 percent would cause the quantity demanded for oil to fall by 5 percent, the elasticity of demand for oil in absolute terms is:

Accepted Answer

A) 10. 
B) 5. 
C) 2. 
D)  0.5. 
A) 10. 
B) 5. 
C) 2. 
D)  0.5.

Question 18

The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?

Accepted Answer

A)  1.00 
B)  0.82 
C)  1.22 
D)  12.2 
A)  1.00 
B)  0.82 
C)  1.22 
D)  12.2

Question 19

What happens to total revenue when demand is unit elastic and the price changes?

Accepted Answer

A)  Revenues increase when the price increases. 
B)  Revenues remain unchanged. 
C)  Revenues decrease when the price increases. 
D)  The change in revenues cannot be estimated. 
A)  Revenues increase when the price increases. 
B)  Revenues remain unchanged. 
C)  Revenues decrease when the price increases. 
D)  The change in revenues cannot be estimated.

Question 20

Which of the following probably has the least elastic demand?

Accepted Answer

A)  cable television 
B)  prescription medications 
C)  eggs 
D)  McDonald's hamburgers 
A)  cable television 
B)  prescription medications 
C)  eggs 
D)  McDonald's hamburgers

Exam 5: Elasticity and Its Applications

The fundamental determinant of the elasticity of supply is:

If the price of cocoa rises by 20 percent, the quantity supplied of cocoa rises by 4 percent. What is the elasticity of supply?

Marge tutors English students. If she raises rates, her revenues increase. Brad tutors biology students. If he lowers rates, his revenues increase. Which of the following is TRUE?

Both the elasticities of demand and supply tend to be more elastic in the long-run.

The supply of ______ tends to be more elastic.

If the price of a good increases from $200 to $250 and quantity supplied increases from 200 units to 400 units, the supply would be classified as elastic.

Economic theory suggests that gun buyback programs:

The demand curve is elastic if an increase in price reduces the quantity demanded by only a little.

The elasticity of demand measures how responsive the price of a good is to a change in the demand.

Compared to the 1980s, the price of computer chips is much lower today and revenues from computer chips are _____ because demand is _____.

Nobel prize-winning economist Gary Becker suggested prohibited drugs should be legalized and then taxed. This would _____ the seller's cost and _____ government revenue.

In regards to the criminalization of drugs, Nobel prize-winning economist Gary Becker suggested:

Most people, when asked, cannot name the price of a canister of table salt at the grocery store within a factor of 25 percent. Which elasticity argument explains why?

The demand curve for Froot Loops breakfast cereal is very elastic because:

If a 4 percent increase in the price of pepper results in a 1 percent decrease in pepper sales, what is the absolute value of the price elasticity of demand for pepper? Is it elastic or inelastic?

If Major League Baseball ticket prices rise by 15 percent, the number of tickets sold falls by 5 percent. The elasticity of demand is:

If an increase in the price of oil by 10 percent would cause the quantity demanded for oil to fall by 5 percent, the elasticity of demand for oil in absolute terms is:

The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?

What happens to total revenue when demand is unit elastic and the price changes?

Which of the following probably has the least elastic demand?

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

Compared to the 1980s, the price of computer chips is much lower today and revenues from computer chips are _ because demand is _.

Nobel prize-winning economist Gary Becker suggested prohibited drugs should be legalized and then taxed. This would _ the seller's cost and _ government revenue.