Question 1

Use the following to answer questions: Figure: Elasticity of Supply  
-(Figure: Elasticity of Supply) Refer to the figure. Which supply curve is the most elastic?

Accepted Answer

A)  S1 
B)  S2 
C)  S3 
D)  S4 
A)  S1 
B)  S2 
C)  S3 
D)  S4

Question 2

The demand for computer chips is inelastic so total revenue for the computer chip industry has increased with a decrease in the price of computer chips.

Accepted Answer

A) True 
 B)False

Question 3

If both the supply of and the demand for a good are highly elastic, a shift of either curve will always result in

Accepted Answer

A)  a decrease in price. 
B)  an increase in price. 
C)  a large change in quantity. 
D)  no change. 
A)  a decrease in price. 
B)  an increase in price. 
C)  a large change in quantity. 
D)  no change.

Question 4

Demand for a specific brand ______ demand for the corresponding product category.

Accepted Answer

A)  is more elastic than 
B)  is less elastic than 
C)  is equally elastic to 
D)  differs indeterminately from 
A)  is more elastic than 
B)  is less elastic than 
C)  is equally elastic to 
D)  differs indeterminately from

Question 5

A perfectly elastic supply curve is:

Accepted Answer

A)  downward sloped. 
B)  vertical. 
C)  upward sloped. 
D)  horizontal. 
A)  downward sloped. 
B)  vertical. 
C)  upward sloped. 
D)  horizontal.

Question 6

If the supply of rental housing increases causing its price to fall and apartment dwellers move into bigger apartments that cost the same as their old ones, we can infer that the:

Accepted Answer

A)  demand for apartments is elastic. 
B)  supply of apartments is elastic. 
C)  demand for apartments is unit elastic. 
D)  demand for apartments is inelastic. 
A)  demand for apartments is elastic. 
B)  supply of apartments is elastic. 
C)  demand for apartments is unit elastic. 
D)  demand for apartments is inelastic.

Question 7

A good with an absolute value of the price elasticity of demand of 0.5 has:

Accepted Answer

A)  an elastic demand. 
B)  an inelastic demand. 
C)  unit elastic demand. 
D)  perfectly inelastic demand. 
A)  an elastic demand. 
B)  an inelastic demand. 
C)  unit elastic demand. 
D)  perfectly inelastic demand.

Question 8

Demand for necessities is inelastic, while demand for luxuries is elastic.

Accepted Answer

A) True 
 B)False

Question 9

Which good below might be expected to have the most inelastic demand curve?

Accepted Answer

A)  salt 
B)  women's blouses from Walmart 
C)  potato chips 
D)  Tylenol 
A)  salt 
B)  women's blouses from Walmart 
C)  potato chips 
D)  Tylenol

Question 10

Farmers can produce more milk at lower cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is:

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  unaffected by elasticity. 
A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  unaffected by elasticity.

Question 11

In the inelastic portion of a linear demand curve, firm revenue ______ when price falls.

Accepted Answer

A)  increases 
B)  decreases 
C)  remains the same 
D)  changes in an indeterminate direction 
A)  increases 
B)  decreases 
C)  remains the same 
D)  changes in an indeterminate direction

Question 12

Figure: Midpoint Formula   Refer to the figure. Based on the midpoint formula, what is the elasticity of demand between $40 and $60?

Accepted Answer

A)  1.25. 
B)  2.5. 
C)  0.75. 
D)  4/5. 
A)  1.25. 
B)  2.5. 
C)  0.75. 
D)  4/5.

Question 13

If the income elasticity of demand of a good is negative, we can conclude that the good is:

Accepted Answer

A)  a normal good. 
B)  an inferior good. 
C)  a substitute. 
D)  a complement. 
A)  a normal good. 
B)  an inferior good. 
C)  a substitute. 
D)  a complement.

Question 14

One of the determinants of the elasticity of demand is whether a good is a luxury or a necessity.

Accepted Answer

A) True 
 B)False

Question 15

Figure: Elasticity and Total Revenue   Refer to the figure. If price falls from $60 to $40, total revenue goes ________, so demand is ________.

Accepted Answer

A)  down by $100; inelastic 
B)  down by $480; elastic 
C)  up by $360; inelastic 
D)  up by $120; elastic 
A)  down by $100; inelastic 
B)  down by $480; elastic 
C)  up by $360; inelastic 
D)  up by $120; elastic

Question 16

If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price.

Accepted Answer

A) True 
 B)False

Question 17

If the supply of a good is very elastic, then any increase in demand for the good will have a:

Accepted Answer

A)  big impact on the price of the good. 
B)  very small impact on the price of the good. 
C)  very small impact on the equilibrium quantity exchanged. 
D)  limiting effect on the quantity sold. 
A)  big impact on the price of the good. 
B)  very small impact on the price of the good. 
C)  very small impact on the equilibrium quantity exchanged. 
D)  limiting effect on the quantity sold.

Question 18

To examine how responsive consumers are to price changes, economists measure:

Accepted Answer

A)  the elasticity of demand. 
B)  mean household income. 
C)  median household income. 
D)  key economic indicators such as unemployment, inflation, and economic growth. 
A)  the elasticity of demand. 
B)  mean household income. 
C)  median household income. 
D)  key economic indicators such as unemployment, inflation, and economic growth.

Question 19

If the price elasticity of demand for a product is 2 in absolute value, and the price elasticity of supply for the same product is 1, what is the predicted percent change in price from a 5 percent fall in the supply?

Accepted Answer

A)  a 1.67 percent fall in price 
B)  a 1.67 percent rise in price 
C)  a 0.6 percent fall in price 
D)  a 0.6 percent rise in price 
A)  a 1.67 percent fall in price 
B)  a 1.67 percent rise in price 
C)  a 0.6 percent fall in price 
D)  a 0.6 percent rise in price

Question 20

If gasoline prices remain high long enough, people will arrange to do more telecommuting. This would be an example of why the elasticity of:

Accepted Answer

A)  supply for gasoline is higher in the long run. 
B)  supply for gasoline is lower in the long run. 
C)  demand for gasoline is higher in the long run. 
D)  demand for gasoline is lower in the long run. 
A)  supply for gasoline is higher in the long run. 
B)  supply for gasoline is lower in the long run. 
C)  demand for gasoline is higher in the long run. 
D)  demand for gasoline is lower in the long run.

Exam 5: Elasticity and Its Applications

Use the following to answer questions: Figure: Elasticity of Supply -(Figure: Elasticity of Supply) Refer to the figure. Which supply curve is the most elastic?

The demand for computer chips is inelastic so total revenue for the computer chip industry has increased with a decrease in the price of computer chips.

If both the supply of and the demand for a good are highly elastic, a shift of either curve will always result in

Demand for a specific brand ______ demand for the corresponding product category.

A perfectly elastic supply curve is:

If the supply of rental housing increases causing its price to fall and apartment dwellers move into bigger apartments that cost the same as their old ones, we can infer that the:

A good with an absolute value of the price elasticity of demand of 0.5 has:

Demand for necessities is inelastic, while demand for luxuries is elastic.

Which good below might be expected to have the most inelastic demand curve?

Farmers can produce more milk at lower cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is:

In the inelastic portion of a linear demand curve, firm revenue ______ when price falls.

Figure: Midpoint Formula Refer to the figure. Based on the midpoint formula, what is the elasticity of demand between $40 and $60?

If the income elasticity of demand of a good is negative, we can conclude that the good is:

One of the determinants of the elasticity of demand is whether a good is a luxury or a necessity.

Figure: Elasticity and Total Revenue Refer to the figure. If price falls from $60 to $40, total revenue goes ________, so demand is ________.

If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price.

If the supply of a good is very elastic, then any increase in demand for the good will have a:

To examine how responsive consumers are to price changes, economists measure:

If the price elasticity of demand for a product is 2 in absolute value, and the price elasticity of supply for the same product is 1, what is the predicted percent change in price from a 5 percent fall in the supply?

If gasoline prices remain high long enough, people will arrange to do more telecommuting. This would be an example of why the elasticity of:

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

Figure: Elasticity and Total Revenue Refer to the figure. If price falls from $60 to $40, total revenue goes , so demand is .