Question 1

In which situation would you expect supply to be less elastic?

Accepted Answer

A)  when looking at the long run 
B)  when looking at the global supply 
C)  when there are constant unit costs as the quantity produced increases 
D)  when looking at local supply 
A)  when looking at the long run 
B)  when looking at the global supply 
C)  when there are constant unit costs as the quantity produced increases 
D)  when looking at local supply

Question 2

If the price of music CDs increases by 10 percent and the quantity supplied increases by 20 percent, the elasticity of supply is equal to 2.0, perhaps indicating the ease of increased production at a relatively constant unit cost.

Accepted Answer

A) True 
 B)False

Question 3

Government gun buyback programs designed to take guns off the street cause the demand for low-quality guns to increase.

Accepted Answer

A) True 
 B)False

Question 4

If the price of aluminum increases 4 percent, and the quantity supplied increases by 1 percent, what is the price elasticity of supply?

Accepted Answer

A)  -4.0 
B)  4.0 
C)  0.25 
D)  3.0 
A)  -4.0 
B)  4.0 
C)  0.25 
D)  3.0

Question 5

For each of the following goods would you expect the supply to be elastic or inelastic? Provide explanation for each of your rationales.
a. oil
b. toothpicks
c. Picasso paintings.

Accepted Answer

a. The supply curve for oil is quite ine

Question 6

Table: Demand Curves $$\begin{array} { c c c } 
\hline \text { Demand Curve } & \boldsymbol { Q } _ { \mathrm { d } } \text { at } \boldsymbol { P } = \mathbf { \$ 9 0 } & \boldsymbol { Q } _ { \mathrm { d } } \text { at } \boldsymbol { P } = \mathbf { \$ 1 0 0 } \
\hline \text { A } & 100 & 97 \
\text { B } & 100 & 96 \
\text { C } & 100 & 94 \
\text { D } & 100 & 98 \
\hline
\end{array}$$ In the table, which demand curve is most price elastic over the range of prices considered?

Accepted Answer

A)  demand curve A 
B)  demand curve B 
C)  demand curve C 
D)  demand curve D 
A)  demand curve A 
B)  demand curve B 
C)  demand curve C 
D)  demand curve D

Question 7

Figure: Price Elasticity of Demand   Refer to the figure. Which of the four demand curves has the greatest responsiveness to price changes?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 8

Much of the world's supply of palm oil (which is used in a variety of products including chocolate and soap) is grown in Indonesia on farms where rain forest once stood. To this day, farmers deforest the local jungle to plant more oil palms (Elaeis guineensis). Suppose an environmental group decided to combat this deforestation by buying local rain forest areas. Would this strategy be more or less successful than slave redemption programs and why?

Accepted Answer

A)  Less successful, because farmers would respond by creating more rain forest. 
B)  More successful, because it is more likely to drastically increase the price of rain forests. 
C)  Less successful, because rain forest land has a perfectly inelastic supply curve. 
D)  More successful, because it is much more likely to discourage palm oil consumption. 
A)  Less successful, because farmers would respond by creating more rain forest. 
B)  More successful, because it is more likely to drastically increase the price of rain forests. 
C)  Less successful, because rain forest land has a perfectly inelastic supply curve. 
D)  More successful, because it is much more likely to discourage palm oil consumption.

Question 9

In 1808, when slavery in the United States was still legal, Congress banned the importation of new slaves. Under these circumstances, would a slave redemption campaign have worked well? Why?

Accepted Answer

A)  Yes, because the supply of slaves was elastic. 
B)  Yes, because the supply of slaves was inelastic. 
C)  No, because the supply of slaves was elastic. 
D)  No, because the supply of slaves was inelastic. 
A)  Yes, because the supply of slaves was elastic. 
B)  Yes, because the supply of slaves was inelastic. 
C)  No, because the supply of slaves was elastic. 
D)  No, because the supply of slaves was inelastic.

Question 10

Why do supply curves tend to be more elastic over time?

Accepted Answer

A)  Sellers have time to adjust and increase production. 
B)  Consumers have time to look for substitutes for the good. 
C)  Consumers have time to reduce their consumption of the good. 
D)  All of the answers are correct. 
A)  Sellers have time to adjust and increase production. 
B)  Consumers have time to look for substitutes for the good. 
C)  Consumers have time to reduce their consumption of the good. 
D)  All of the answers are correct.

Question 11

If the price of Good X rises from $4 to $5, and the quantity demanded of it falls from 200 units to 180 units, the absolute value of the price elasticity of demand is:

Accepted Answer

A)  2.1. 
B)  0.47. 
C)  1.4. 
D)  0.4. 
A)  2.1. 
B)  0.47. 
C)  1.4. 
D)  0.4.

Question 12

Economic theory suggests that permanent gun buyback programs:

Accepted Answer

A)  succeed in reducing the number of guns in circulation. 
B)  make guns less valuable. 
C)  increase the quantity of low-quality guns in circulation but decrease the quantity of high-quality guns in circulation. 
D)  increase the number of guns in circulation. 
A)  succeed in reducing the number of guns in circulation. 
B)  make guns less valuable. 
C)  increase the quantity of low-quality guns in circulation but decrease the quantity of high-quality guns in circulation. 
D)  increase the number of guns in circulation.

Question 13

A firm's revenue is price per unit times the quantity sold, so an increase in price decreases revenue if demand is elastic.

Accepted Answer

A) True 
 B)False

Question 14

The demand curves for Good A and Good B are given by
Qa = 100 - Pa and Qb = 50 - 0.2Pb,
where Qa is the quantity demanded of Good A, Pa is the price of Good A, Qb is the quantity demanded of Good B, and Pb is the price of Good B.
a. Graph the demand curve for both goods.
b. Which demand curve is more elastic?
c. If the price of both goods increases from $50 to $60, what happens to total revenue in each market?
d. Use the midpoint formula to calculate the elasticity of demand for both goods resulting from the price change in part c.
e. What do your elasticity of demand calculations in part d tell you about the elasticity of demand for Goods A and B?

Accepted Answer

a. @#IMG-DLM& b. The demand for Good A is more ela

Question 15

The elasticity of demand for cigarettes is more inelastic in the long run than in the short run because it takes a long time for some people to quit smoking.

Accepted Answer

A) True 
 B)False

Question 16

Table: Elasticities of Good X $$\begin{array} { l l } 
\hline & \text { Good X } \
\hline \text { Price elasticity of demand } & 2.5 \
\text { Income elasticity of demand } & 0.5 \
\text { Cross-price elasticity of demand with Good Y } & 1.5 \
\text { Price elasticity of supply } & 1
\end{array}$$ 
Refer to the table. From the information in the table, what can you say about good X? In particular, is the demand for Good X rather elastic or inelastic? What does this imply about the number of substitutes that exist for Good X? Does Good Y appear to be a substitute for Good X? Does Good X appear to be a normal or inferior good? Finally, is the elasticity of supply for Good X relatively elastic or inelastic?

Accepted Answer

Good X has a rather elastic demand curve

Question 17

Unlike demand, supply is less elastic in the long run.

Accepted Answer

A) True 
 B)False

Question 18

Assume that demand decreases by 3 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case?

Accepted Answer

A)  -1.5 
B)  -0.5 
C)  0.5 
D)  1.5 
A)  -1.5 
B)  -0.5 
C)  0.5 
D)  1.5

Question 19

If the demand for heroin is inelastic and heroin users get the money to pay for heroin by committing crimes, policymakers who want to reduce crime should:

Accepted Answer

A)  make it harder to find heroin. 
B)  tax heroin. 
C)  try to lower the price of heroin. 
D)  try to raise the price of heroin. 
A)  make it harder to find heroin. 
B)  tax heroin. 
C)  try to lower the price of heroin. 
D)  try to raise the price of heroin.

Question 20

The demand for necessary goods tends to be less elastic.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Applications

In which situation would you expect supply to be less elastic?

If the price of music CDs increases by 10 percent and the quantity supplied increases by 20 percent, the elasticity of supply is equal to 2.0, perhaps indicating the ease of increased production at a relatively constant unit cost.

Government gun buyback programs designed to take guns off the street cause the demand for low-quality guns to increase.

If the price of aluminum increases 4 percent, and the quantity supplied increases by 1 percent, what is the price elasticity of supply?

For each of the following goods would you expect the supply to be elastic or inelastic? Provide explanation for each of your rationales. a. oil b. toothpicks c. Picasso paintings.

Table: Demand Curves Demand Curve at = at = A 100 97 B 100 96 C 100 94 D 100 98 In the table, which demand curve is most price elastic over the range of prices considered?

Figure: Price Elasticity of Demand Refer to the figure. Which of the four demand curves has the greatest responsiveness to price changes?

In 1808, when slavery in the United States was still legal, Congress banned the importation of new slaves. Under these circumstances, would a slave redemption campaign have worked well? Why?

Why do supply curves tend to be more elastic over time?

If the price of Good X rises from $4 to $5, and the quantity demanded of it falls from 200 units to 180 units, the absolute value of the price elasticity of demand is:

Economic theory suggests that permanent gun buyback programs:

A firm's revenue is price per unit times the quantity sold, so an increase in price decreases revenue if demand is elastic.

The elasticity of demand for cigarettes is more inelastic in the long run than in the short run because it takes a long time for some people to quit smoking.

Unlike demand, supply is less elastic in the long run.

Assume that demand decreases by 3 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case?

If the demand for heroin is inelastic and heroin users get the money to pay for heroin by committing crimes, policymakers who want to reduce crime should:

The demand for necessary goods tends to be less 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