Question 1

In the elastic 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 2

The manager of a company notices that the company's total revenue would increase if she raised the price of the company's product. Accordingly, the manager can assert that the demand for the company's product is:

Accepted Answer

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

Question 3

Discuss the effectiveness of the slave redemption programs in Sudan when it is assumed that the elasticity of the supply of slaves is perfectly inelastic. Use a supply and demand diagram to help illustrate your response.

Accepted Answer

[Note: Students will likely use varying

Question 4

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

Accepted Answer

A)  a rise in price of 0.5 percent 
B)  a rise in price of 2 percent 
C)  a fall in price of 0.5 percent 
D)  a fall in price of 2 percent 
A)  a rise in price of 0.5 percent 
B)  a rise in price of 2 percent 
C)  a fall in price of 0.5 percent 
D)  a fall in price of 2 percent

Question 5

If the price elasticity of demand is 0.5, then when the price of Good X rises by 20 percent:

Accepted Answer

A)  the quantity demanded of it rises by 40 percent. 
B)  the quantity demanded of it rises by 10 percent. 
C)  the quantity demanded of it falls by 10 percent. 
D)  the quantity demanded of it falls by 40 percent. 
A)  the quantity demanded of it rises by 40 percent. 
B)  the quantity demanded of it rises by 10 percent. 
C)  the quantity demanded of it falls by 10 percent. 
D)  the quantity demanded of it falls by 40 percent.

Question 6

Necessities tend to have a(n) ______ demand than luxuries.

Accepted Answer

A)  more elastic 
B)  more inelastic 
C)  equally elastic 
D)  equally inelastic 
A)  more elastic 
B)  more inelastic 
C)  equally elastic 
D)  equally inelastic

Question 7

If a rising price leads to falling revenues, then demand is elastic.

Accepted Answer

A) True 
 B)False

Question 8

If two linear demand (or supply) curves run through a common point, then at any given quantity, the curve that is steeper is more:

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  responsive. 
D)  resilient. 
A)  elastic. 
B)  inelastic. 
C)  responsive. 
D)  resilient.

Question 9

Assume that the supply curve for a good is fixed at 100 units. Now suppose that the demand curve for the good increases such that the equilibrium price rises from $20 to $30. How does total revenue for the sale of this product change?

Accepted Answer

A)  Total revenue rises by $1,000. 
B)  Total revenue does not change. 
C)  Total revenue rises by $3,000. 
D)  Total revenue rises by $10. 
A)  Total revenue rises by $1,000. 
B)  Total revenue does not change. 
C)  Total revenue rises by $3,000. 
D)  Total revenue rises by $10.

Question 10

Which of the following is a reason why the demand curve for an item would be more elastic?

Accepted Answer

A)  The item is a necessity. 
B)  People's incomes are very high relative to the cost of the item. 
C)  The item has many very good substitutes. 
D)  The cost of the item forms a very small part of consumers' budgets. 
A)  The item is a necessity. 
B)  People's incomes are very high relative to the cost of the item. 
C)  The item has many very good substitutes. 
D)  The cost of the item forms a very small part of consumers' budgets.

Question 11

In the market for backpacks, 100 backpacks are sold at $40 each. Then a fall in wages results in sales of 500 backpacks at a price of $20 each. Using the midpoint method, what is the absolute value of the elasticity of demand for backpacks?

Accepted Answer

A)  0.125 
B)  0.5 
C)  2 
D)  8 
A)  0.125 
B)  0.5 
C)  2 
D)  8

Question 12

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

Accepted Answer

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

Question 13

The supply of a good tends to be more elastic if:

Accepted Answer

A)  a change in the price of the good causes only a small change in the quantity supplied. 
B)  the good is considered a necessary good. 
C)  production can be expanded without causing a big increase in the price of its inputs. 
D)  an increase in production has only a minimal impact on demand for the good. 
A)  a change in the price of the good causes only a small change in the quantity supplied. 
B)  the good is considered a necessary good. 
C)  production can be expanded without causing a big increase in the price of its inputs. 
D)  an increase in production has only a minimal impact on demand for the good.

Question 14

The price of good X increases from $55 to $60, and quantity demanded decreases from 500 to 400. The price of good Y increases from $55 to $60, and quantity demanded decreases from 500 to 475. Given this information, the:

Accepted Answer

A)  consumers who buy good X are less sensitive to price changes than consumers who buy good Y. 
B)  demand curve for good X is less elastic than the demand curve for good Y. 
C)  demand curve for good X is more elastic than the demand curve for good Y. 
D)  demand curves for good X and good Y violate the law of demand. 
A)  consumers who buy good X are less sensitive to price changes than consumers who buy good Y. 
B)  demand curve for good X is less elastic than the demand curve for good Y. 
C)  demand curve for good X is more elastic than the demand curve for good Y. 
D)  demand curves for good X and good Y violate the law of demand.

Question 15

Suppose that it is extremely inexpensive to acquire additional acres of land to grow bananas. We would then expect that the elasticity of supply of bananas is elastic.

Accepted Answer

A) True 
 B)False

Question 16

Figure: Elasticity and Revenue   Refer to the figure. When the price of the product rises from $4 to $6, the total revenue changes by the area(s) represented by:

Accepted Answer

A)  F. 
B)  F - E. 
C)  F - (E +
B) . 
D)  F + D + A. 
A)  F. 
B)  F - E. 
C)  F - (E +
B) . 
D)  F + D + A.

Question 17

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent, the quantity supplied of Good Y:

Accepted Answer

A)  rises by 7.5 percent. 
B)  rises by 133 percent. 
C)  falls by 7.5 percent. 
D)  falls by 133 percent. 
A)  rises by 7.5 percent. 
B)  rises by 133 percent. 
C)  falls by 7.5 percent. 
D)  falls by 133 percent.

Question 18

The elasticity of supply measures how sensitive the supply curve is to a change in price.

Accepted Answer

A) True 
 B)False

Question 19

Since roughly 1950, total revenues in the farming sector have ________, and since 1980 total revenues in computer chips have ________.

Accepted Answer

A)  increased; decreased 
B)  decreased; decreased 
C)  increased; increased 
D)  decreased; increased 
A)  increased; decreased 
B)  decreased; decreased 
C)  increased; increased 
D)  decreased; increased

Question 20

When demand is inelastic, total revenue goes down in proportion to a price increase.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Applications

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

The manager of a company notices that the company's total revenue would increase if she raised the price of the company's product. Accordingly, the manager can assert that the demand for the company's product is:

Discuss the effectiveness of the slave redemption programs in Sudan when it is assumed that the elasticity of the supply of slaves is perfectly inelastic. Use a supply and demand diagram to help illustrate your response.

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

If the price elasticity of demand is 0.5, then when the price of Good X rises by 20 percent:

Necessities tend to have a(n) ______ demand than luxuries.

If a rising price leads to falling revenues, then demand is elastic.

If two linear demand (or supply) curves run through a common point, then at any given quantity, the curve that is steeper is more:

Assume that the supply curve for a good is fixed at 100 units. Now suppose that the demand curve for the good increases such that the equilibrium price rises from $20 to $30. How does total revenue for the sale of this product change?

Which of the following is a reason why the demand curve for an item would be more elastic?

In the market for backpacks, 100 backpacks are sold at $40 each. Then a fall in wages results in sales of 500 backpacks at a price of $20 each. Using the midpoint method, what is the absolute value of the elasticity of demand for backpacks?

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

The supply of a good tends to be more elastic if:

The price of good X increases from $55 to $60, and quantity demanded decreases from 500 to 400. The price of good Y increases from $55 to $60, and quantity demanded decreases from 500 to 475. Given this information, the:

Suppose that it is extremely inexpensive to acquire additional acres of land to grow bananas. We would then expect that the elasticity of supply of bananas is elastic.

Figure: Elasticity and Revenue Refer to the figure. When the price of the product rises from $4 to $6, the total revenue changes by the area(s) represented by:

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent, the quantity supplied of Good Y:

The elasticity of supply measures how sensitive the supply curve is to a change in price.

Since roughly 1950, total revenues in the farming sector have ________, and since 1980 total revenues in computer chips have ________.

When demand is inelastic, total revenue goes down in proportion to a price increase.

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

Since roughly 1950, total revenues in the farming sector have , and since 1980 total revenues in computer chips have .