Question 1

When a good has fewer substitutes in consumption, is a small part of the consumer's budget, and a long time has passed, demand for such a good is inelastic.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is TRUE?

Accepted Answer

A)  Luxury goods tend to have more elastic demand curves. 
B)  Goods that are necessities tend to have more elastic demand curves. 
C)  The elasticity of demand for a particular brand of product equals the elasticity of demand for the product category. 
D)  Goods with more substitutes tend to have a lower elasticity of demand. 
A)  Luxury goods tend to have more elastic demand curves. 
B)  Goods that are necessities tend to have more elastic demand curves. 
C)  The elasticity of demand for a particular brand of product equals the elasticity of demand for the product category. 
D)  Goods with more substitutes tend to have a lower elasticity of demand.

Question 3

Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income elasticity of demand for steaks.

Accepted Answer

A)  -1 
B)  1 
C)  -12.5 
D)  12.5 
A)  -1 
B)  1 
C)  -12.5 
D)  12.5

Question 4

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a:

Accepted Answer

A)  3 percent decrease in quantity demanded. 
B)  5.33 percent increase in quantity demanded. 
C)  5.33 percent decrease in quantity demanded. 
D)  0.19 percent decrease in quantity demanded. 
A)  3 percent decrease in quantity demanded. 
B)  5.33 percent increase in quantity demanded. 
C)  5.33 percent decrease in quantity demanded. 
D)  0.19 percent decrease in quantity demanded.

Question 5

If the price elasticity of demand is 1 in absolute value, then a percentage drop in price will lead to an equal percentage increase in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 6

Table: Supply Curve $$\begin{array} { c c c } 
\hline \text { Supply Curve } & \boldsymbol { Q } \text { at } \boldsymbol { P } = \mathbf { \$ 9 0 } & \boldsymbol { Q } \text { at } \boldsymbol { P } = \mathbf { \$ 1 0 0 } \
\hline \text { A } & 100 & 101 \
\text { B } & 100 & 103 \
\text { C } & 100 & 105 \
\text { D } & 100 & 104 \
\hline
\end{array}$$ In the table, which supply curve is most price elastic over the range of prices considered?

Accepted Answer

A)  supply curve A 
B)  supply curve B 
C)  supply curve C 
D)  supply curve D 
A)  supply curve A 
B)  supply curve B 
C)  supply curve C 
D)  supply curve D

Question 7

A higher income tends to make demand for a given good ______ elastic.

Accepted Answer

A)  more 
B)  less 
C)  equally 
D)  indeterminately 
A)  more 
B)  less 
C)  equally 
D)  indeterminately

Question 8

Operating along the elastic portion of a linear demand curve, revenue rises with price.

Accepted Answer

A) True 
 B)False

Question 9

Gun buyback programs, such as the one instituted in Washington, D.C., tend to not be very effective because:

Accepted Answer

A)  the supply of the types of guns exchanged is highly elastic. 
B)  the supply of the types of guns exchanged is not very elastic. 
C)  the programs tend to have a large impact on the price of guns on the street. 
D)  the programs simply end up decreasing the elasticity of supply. 
A)  the supply of the types of guns exchanged is highly elastic. 
B)  the supply of the types of guns exchanged is not very elastic. 
C)  the programs tend to have a large impact on the price of guns on the street. 
D)  the programs simply end up decreasing the elasticity of supply.

Question 10

A 4 percent increase in the price of beer will cause a 1 percent decline in the quantity of beer demanded. The demand for beer is:

Accepted Answer

A)  elastic. 
B)  unitary elastic. 
C)  inelastic. 
D)  elastic at 4 (in absolute value). 
A)  elastic. 
B)  unitary elastic. 
C)  inelastic. 
D)  elastic at 4 (in absolute value).

Question 11

Similar to the elasticity of demand, the elasticity of supply tends to become more elastic in the long run.

Accepted Answer

A) True 
 B)False

Question 12

The demand for most goods tends to become ______ over time.

Accepted Answer

A)  downward sloping 
B)  more vertical 
C)  more elastic 
D)  less elastic 
A)  downward sloping 
B)  more vertical 
C)  more elastic 
D)  less elastic

Question 13

Use the following to answer questions: Figure: Slave Redemption and Elasticity  
-(Figure: Slave Redemption and Elasticity) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. How many slaves are freed after the redemption program?

Accepted Answer

A)  1,000 
B)  400 
C)  600 
D)  1,400 
A)  1,000 
B)  400 
C)  600 
D)  1,400

Question 14

Suppose that along a given demand curve, price goes up by 10 percent, decreasing quantity demanded by 5 percent. The price elasticity of demand is:

Accepted Answer

A) 50. 
B)  -2. 
C)  -1/2. 
D)  impossible to calculate without specific prices and quantities. 
A) 50. 
B)  -2. 
C)  -1/2. 
D)  impossible to calculate without specific prices and quantities.

Question 15

If the demand for a good is elastic, 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 16

Table: Price Elasticities $$\begin{array} { l l l } 
\hline & \text { Good X } & \text { Good Y } \
\hline \text { Price elasticity of demand } & 0.5 & 1 \
\text { Price elasticity of supply } & 1 & 0.5 \
\hline
\end{array}$$ 
Refer to the table. Use the information provided to predict the following:
a. The percent change in price (P) when there is a 2 percent rise in the quantity demanded for Good X.
b. The percent change in price (P) when there is a 5 percent fall in the quantity demanded for Good Y.
c. The percent change in price (P) when there is a 5 percent fall in the quantity supplied of Good X.

Accepted Answer

a. 2/(1.5) = 1.33% r

Question 17

Figure: Supply Elasticity   Refer to the figure. Which one of the four supply curves has the greatest responsiveness to price changes?

Accepted Answer

A)  Supply Curve A 
B)  Supply Curve B 
C)  Supply Curve C 
D)  Supply Curve D 
A)  Supply Curve A 
B)  Supply Curve B 
C)  Supply Curve C 
D)  Supply Curve D

Question 18

If the price of gasoline in this country were expected to rise due to a permanent increase in the tax on gasoline, which of the following would you expect to happen?

Accepted Answer

A)  The demand for gasoline would become more elastic. 
B)  The demand for gasoline would decrease as a result of the higher price. 
C)  Producers will have less of an incentive to supply gasoline as a result of the higher taxes. 
D)  The elasticity of demand will not change since gasoline is a necessary good. 
A)  The demand for gasoline would become more elastic. 
B)  The demand for gasoline would decrease as a result of the higher price. 
C)  Producers will have less of an incentive to supply gasoline as a result of the higher taxes. 
D)  The elasticity of demand will not change since gasoline is a necessary good.

Question 19

Over time, the demand for most goods becomes ______ elastic since we are able to ______.

Accepted Answer

A)  more; develop more/better substitutes 
B)  less; develop more/better substitutes 
C)  more; produce more of the good or service 
D)  less; produce more of the good or service 
A)  more; develop more/better substitutes 
B)  less; develop more/better substitutes 
C)  more; produce more of the good or service 
D)  less; produce more of the good or service

Question 20

If the cross-price elasticity of demand of two goods is negative, we can conclude that the two goods are:

Accepted Answer

A)  substitutes. 
B)  complements. 
C)  normal goods. 
D)  inferior goods. 
A)  substitutes. 
B)  complements. 
C)  normal goods. 
D)  inferior goods.

Exam 5: Elasticity and Its Applications

When a good has fewer substitutes in consumption, is a small part of the consumer's budget, and a long time has passed, demand for such a good is inelastic.

Which of the following statements is TRUE?

Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income elasticity of demand for steaks.

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a:

If the price elasticity of demand is 1 in absolute value, then a percentage drop in price will lead to an equal percentage increase in quantity demanded.

Table: Supply Curve Supply Curve at = at = A 100 101 B 100 103 C 100 105 D 100 104 In the table, which supply curve is most price elastic over the range of prices considered?

A higher income tends to make demand for a given good ______ elastic.

Operating along the elastic portion of a linear demand curve, revenue rises with price.

Gun buyback programs, such as the one instituted in Washington, D.C., tend to not be very effective because:

A 4 percent increase in the price of beer will cause a 1 percent decline in the quantity of beer demanded. The demand for beer is:

Similar to the elasticity of demand, the elasticity of supply tends to become more elastic in the long run.

The demand for most goods tends to become ______ over time.

Use the following to answer questions: Figure: Slave Redemption and Elasticity -(Figure: Slave Redemption and Elasticity) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. How many slaves are freed after the redemption program?

Suppose that along a given demand curve, price goes up by 10 percent, decreasing quantity demanded by 5 percent. The price elasticity of demand is:

If the demand for a good is elastic, then:

Figure: Supply Elasticity Refer to the figure. Which one of the four supply curves has the greatest responsiveness to price changes?

If the price of gasoline in this country were expected to rise due to a permanent increase in the tax on gasoline, which of the following would you expect to happen?

Over time, the demand for most goods becomes ______ elastic since we are able to ______.

If the cross-price elasticity of demand of two goods is negative, we can conclude that the two goods are:

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

Over time, the demand for most goods becomes elastic since we are able to .