Question 1

Which one of the following products would tend to have inelastic demand?

Accepted Answer

A)  luxury sedans 
B)  candy 
C)  crude oil 
D)  Black Angus T-bone steak 
A)  luxury sedans 
B)  candy 
C)  crude oil 
D)  Black Angus T-bone steak

Question 2

When comparing two linear demand curves at a common point, the flatter curve is:

Accepted Answer

A)  more normal. 
B)  less responsive. 
C)  more elastic. 
D)  less elastic. 
A)  more normal. 
B)  less responsive. 
C)  more elastic. 
D)  less elastic.

Question 3

The elasticity of demand for oil is about 0.5, and the elasticity of supply is about 0.3. If the Arctic National Wildlife Refuge (ANWR) were drilled and the world supply of oil increased by 3 percent, what is the estimated percent change in the world price of oil?

Accepted Answer

A)  -1.25 percent 
B)  -2.50 percent 
C)  -3.75 percent 
D)  Unknown 
A)  -1.25 percent 
B)  -2.50 percent 
C)  -3.75 percent 
D)  Unknown

Question 4

Which of the following probably has the most elastic demand?

Accepted Answer

A)  gasoline 
B)  prescription medications 
C)  toilet paper 
D)  McDonald's hamburgers 
A)  gasoline 
B)  prescription medications 
C)  toilet paper 
D)  McDonald's hamburgers

Question 5

Why might the demand for massages be more elastic than the demand for chiropractic adjustments?

Accepted Answer

A)  Relative to massages, there are more substitutes for chiropractic adjustments. 
B)  People get massages in the short run and chiropractic adjustments in the long run. 
C)  Massages are much cheaper than chiropractic adjustments. 
D)  Massages tend to be luxuries and chiropractic adjustments tend to be necessities. 
A)  Relative to massages, there are more substitutes for chiropractic adjustments. 
B)  People get massages in the short run and chiropractic adjustments in the long run. 
C)  Massages are much cheaper than chiropractic adjustments. 
D)  Massages tend to be luxuries and chiropractic adjustments tend to be necessities.

Question 6

The elasticity of supply measures:

Accepted Answer

A)  how responsive price is to a change in the quantity supplied of a good or service. 
B)  how much value suppliers place on each unit of the good or service. 
C)  the rate of change of supply in relation to demand. 
D)  how responsive the quantity supplied is to a change in the price of a good or service. 
A)  how responsive price is to a change in the quantity supplied of a good or service. 
B)  how much value suppliers place on each unit of the good or service. 
C)  the rate of change of supply in relation to demand. 
D)  how responsive the quantity supplied is to a change in the price of a good or service.

Question 7

The elasticity of demand measures how responsive consumers are to price changes. For example, when a small decrease in price leads to a large increase in quantity demanded, demand is considered elastic.

Accepted Answer

A) True 
 B)False

Question 8

The elastic demand curve for drugs makes the war on drugs hard to win.

Accepted Answer

A) True 
 B)False

Question 9

If the price of a good falls from $20 to $10 and quantity demanded rises from 400 to 500, the demand would be classified as inelastic.

Accepted Answer

A) True 
 B)False

Question 10

If the income elasticity of demand of a good is positive, 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 11

The price of Good B increases by 4 percent, causing the quantity demanded of Good A to decrease by 6 percent. The cross-price elasticity of demand is ________, and the goods are ________.

Accepted Answer

A)  1.5; substitutes 
B)  -1.5; complements 
C)  0.67; complements 
D)  -0.67; substitutes 
A)  1.5; substitutes 
B)  -1.5; complements 
C)  0.67; complements 
D)  -0.67; substitutes

Question 12

Since the demand for illegal drugs is quite inelastic, an increase in the price of illegal drugs:

Accepted Answer

A)  increases seller revenues. 
B)  decreases seller revenues. 
C)  does not affect seller revenues. 
D)  put an end to the use of illegal drugs. 
A)  increases seller revenues. 
B)  decreases seller revenues. 
C)  does not affect seller revenues. 
D)  put an end to the use of illegal drugs.

Question 13

Summarize the factors that cause goods to have a more inelastic supply.

Accepted Answer

[Note: Students will likely gi

Question 14

The elasticity of supply measures:

Accepted Answer

A)  the percent change in quantity demanded divided by the percent change in price. 
B)  the percent change in quantity supplied. 
C)  the percent change in price. 
D)  how responsive the quantity supplied is to a change in price. 
A)  the percent change in quantity demanded divided by the percent change in price. 
B)  the percent change in quantity supplied. 
C)  the percent change in price. 
D)  how responsive the quantity supplied is to a change in price.

Question 15

Use the following to answer questions: Figure: Gun Market  
-(Figure: Gun Market) In the gun market shown, the number of guns in the city that is having the gun buyback program is:

Accepted Answer

A)  1,670. 
B)  3,730. 
C)  6,000. 
D)  2,060. 
A)  1,670. 
B)  3,730. 
C)  6,000. 
D)  2,060.

Question 16

The supply of U.S. housing is more inelastic if most of the timber in the United States goes to housing construction.

Accepted Answer

A) True 
 B)False

Question 17

In Medieval Europe, there were two basic types of waterwheel. In an undershot wheel, water flows below the wheel to turn it. In an overshot wheel, water flows over the top of the wheel to turn it. Because the overshot wheel cooperates better with gravity, it is more efficient than an undershot wheel but it also requires a hill. Which wheel has a more inelastic supply curve and why?

Accepted Answer

A)  An undershot wheel, because Europe is much smaller than the rest of the world. 
B)  An undershot wheel, because it was less efficient than the overshot wheel. 
C)  An overshot wheel, because it was more efficient than the undershot wheel. 
D)  An overshot wheel, because it was more difficult to find locations to build them. 
A)  An undershot wheel, because Europe is much smaller than the rest of the world. 
B)  An undershot wheel, because it was less efficient than the overshot wheel. 
C)  An overshot wheel, because it was more efficient than the undershot wheel. 
D)  An overshot wheel, because it was more difficult to find locations to build them.

Question 18

Drug prohibition is likely to increase drug-industry revenue because the demand for drugs is inelastic.

Accepted Answer

A) True 
 B)False

Question 19

A cross-price elasticity value that is positive will indicate goods that are substitutes.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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

Exam 5: Elasticity and Its Applications

Which one of the following products would tend to have inelastic demand?

When comparing two linear demand curves at a common point, the flatter curve is:

The elasticity of demand for oil is about 0.5, and the elasticity of supply is about 0.3. If the Arctic National Wildlife Refuge (ANWR) were drilled and the world supply of oil increased by 3 percent, what is the estimated percent change in the world price of oil?

Which of the following probably has the most elastic demand?

Why might the demand for massages be more elastic than the demand for chiropractic adjustments?

The elasticity of supply measures:

The elasticity of demand measures how responsive consumers are to price changes. For example, when a small decrease in price leads to a large increase in quantity demanded, demand is considered elastic.

The elastic demand curve for drugs makes the war on drugs hard to win.

If the price of a good falls from $20 to $10 and quantity demanded rises from 400 to 500, the demand would be classified as inelastic.

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

The price of Good B increases by 4 percent, causing the quantity demanded of Good A to decrease by 6 percent. The cross-price elasticity of demand is ________, and the goods are ________.

Since the demand for illegal drugs is quite inelastic, an increase in the price of illegal drugs:

Summarize the factors that cause goods to have a more inelastic supply.

The elasticity of supply measures:

Use the following to answer questions: Figure: Gun Market -(Figure: Gun Market) In the gun market shown, the number of guns in the city that is having the gun buyback program is:

The supply of U.S. housing is more inelastic if most of the timber in the United States goes to housing construction.

Drug prohibition is likely to increase drug-industry revenue because the demand for drugs is inelastic.

A cross-price elasticity value that is positive will indicate goods that are substitutes.

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

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

The price of Good B increases by 4 percent, causing the quantity demanded of Good A to decrease by 6 percent. The cross-price elasticity of demand is , and the goods are .