Question 1

The demand for Michelin tires is ______ elastic than the demand for tires, and the demand for chocolate is ______ elastic than the demand for Godiva chocolate.

Accepted Answer

A)  more; more 
B)  less; more 
C)  less; less 
D)  more; less 
A)  more; more 
B)  less; more 
C)  less; less 
D)  more; less

Question 2

If the price of Good Y falls from $10 to $8, and the quantity demanded of it rises from 1,000 units to 1,200 units, the price elasticity of demand expressed in absolute value is:

Accepted Answer

A)  1.00. 
B)  0.20. 
C)  0.82. 
D)  1.22. 
A)  1.00. 
B)  0.20. 
C)  0.82. 
D)  1.22.

Question 3

Figure: Demand 1   In the diagram, what is the elasticity of demand between a price of $100 and $200? Use the midpoint method of calculation to find your answer.

Accepted Answer

A)  -1.8. 
B)  -0.9. 
C)  -0.6. 
D)  -0.2. 
A)  -1.8. 
B)  -0.9. 
C)  -0.6. 
D)  -0.2.

Question 4

Figure: Price Increase and Elasticity   Refer to the figure. If price increases from $10 to $20, total revenue will:

Accepted Answer

A)  increase by $800 so the demand curve must be inelastic. 
B)  increase by $100 so the demand curve must be inelastic. 
C)  decrease by $800 so the demand curve must be elastic. 
D)  decrease by $100 so the demand curve must be elastic. 
A)  increase by $800 so the demand curve must be inelastic. 
B)  increase by $100 so the demand curve must be inelastic. 
C)  decrease by $800 so the demand curve must be elastic. 
D)  decrease by $100 so the demand curve must be elastic.

Question 5

If the price of coffee falls by 10 percent and the quantity supplied of coffee falls by 1.5 percent, then the elasticity of supply of coffee is:

Accepted Answer

A) 10. 
B)  1.5. 
C)  0.15. 
D)  6.67. 
A) 10. 
B)  1.5. 
C)  0.15. 
D)  6.67.

Question 6

If the demand for currently illegal recreational drugs is highly inelastic and these drugs became legal, prices would fall. An economist would expect which of the following to happen in response to the lower price?

Accepted Answer

A)  Total spending on drugs would rise. 
B)  No one would follow the laws of economics anymore. 
C)  Many more people would become drug users. 
D)  Not many more people would become drug users. 
A)  Total spending on drugs would rise. 
B)  No one would follow the laws of economics anymore. 
C)  Many more people would become drug users. 
D)  Not many more people would become drug users.

Question 7

When a shift in demand or supply occurs, economists can make a quick prediction of the change in price. The denominator of the simple price-change formula is the:

Accepted Answer

A)  multiple of the elasticities of supply and demand. 
B)  sum of the elasticities of supply and demand. 
C)  difference between the elasticities of supply and demand. 
D)  percent change in either demand or supply. 
A)  multiple of the elasticities of supply and demand. 
B)  sum of the elasticities of supply and demand. 
C)  difference between the elasticities of supply and demand. 
D)  percent change in either demand or supply.

Question 8

Why is the war on drugs hard to win?

Accepted Answer

A)  It is not a conventional war. 
B)  The government has not used adequate resources in the war. 
C)  Drug dealers get greater revenue following successful government prohibition efforts. 
D)  The demand for illegal drugs is too elastic. 
A)  It is not a conventional war. 
B)  The government has not used adequate resources in the war. 
C)  Drug dealers get greater revenue following successful government prohibition efforts. 
D)  The demand for illegal drugs is too elastic.

Question 9

Istanbul's Dolmabaçe Palace, built near the end of the Ottoman Empire, rests on a former garden that was created in the eighteenth century at great expense by filling in a bay. (Dolmabaçe means "filled-in garden" in Turkish.) What does the Dolmabaçe Palace teach us about the elasticity of supply of land?

Accepted Answer

A)  It is perfectly elastic. 
B)  It is not perfectly elastic, but close to it. 
C)  It is perfectly inelastic. 
D)  It is not perfectly inelastic, but close to it. 
A)  It is perfectly elastic. 
B)  It is not perfectly elastic, but close to it. 
C)  It is perfectly inelastic. 
D)  It is not perfectly inelastic, but close to it.

Question 10

Consider a market that is described by the equations Qd = 10 - 0.5P, and Qs = -2 + 1.5P. What is the equilibrium price? What is the equilibrium quantity? If the supply curve shifts and the new supply equation is -4 + 1.5P, what are the new equilibrium price and the new equilibrium quantity? Calculate the price elasticity of demand. Is the demand curve between price 1 and price 2 inelastic or elastic?

Accepted Answer

10 - 0.5P = -2 + 1.5P
12 = 2P
P = $6 and

Question 11

On October 1, 2009, the Nintendo Wii's Japanese price dropped from ¥25,000 to ¥20,000. In the three months after the price drop, Japanese sales of the Wii were approximately 1,040,000. Twelve months earlier, over the same interval at the high price, sales totaled 890,000. Using the midpoint method, what is the absolute value of the price elasticity of demand of a Wii console? Is it an elastic or inelastic good?

Accepted Answer

A)  1.43; inelastic 
B)  0.7; inelastic 
C)  1.43; elastic 
D)  0.7; elastic 
A)  1.43; inelastic 
B)  0.7; inelastic 
C)  1.43; elastic 
D)  0.7; elastic

Question 12

If the government raises the minimum wage by 6 percent, the number of people employed falls by 2%. What is the elasticity of employment with respect to the minimum wage?

Accepted Answer

A)  -3.0 
B)  -0.33 
C)  -12 
D)  -0.0012 
A)  -3.0 
B)  -0.33 
C)  -12 
D)  -0.0012

Question 13

Walter provides lawn-cutting services and notices that his total revenue increases when he cuts prices. The elasticity of demand for his services is:

Accepted Answer

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

Question 14

When demand is ______, an increase in price ______ total revenue.

Accepted Answer

A)  inelastic; raises 
B)  inelastic; lowers 
C)  unit elastic; raises 
D)  elastic; raises 
A)  inelastic; raises 
B)  inelastic; lowers 
C)  unit elastic; raises 
D)  elastic; raises

Question 15

The elasticity of demand measures:

Accepted Answer

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

Question 16

The fundamental determinant of the elasticity of supply is how quickly per-unit costs increase with an increase in production.

Accepted Answer

A) True 
 B)False

Question 17

The elasticity of demand for oil is -0.5 and the elasticity of supply is 0.20. If the demand for oil increases 10 percent, what happens to the price of oil?

Accepted Answer

A)  It increases by 14 percent. 
B)  It decreases by 20 percent. 
C)  It increases by 8 percent. 
D)  It increases by 40 percent. 
A)  It increases by 14 percent. 
B)  It decreases by 20 percent. 
C)  It increases by 8 percent. 
D)  It increases by 40 percent.

Question 18

The fundamental determinant of the elasticity of demand for a good is:

Accepted Answer

A)  the opportunity cost of producing the good. 
B)  the value that consumers place on one more unit of the good. 
C)  how easy it is to substitute the good for another. 
D)  the number of consumers in the market. 
A)  the opportunity cost of producing the good. 
B)  the value that consumers place on one more unit of the good. 
C)  how easy it is to substitute the good for another. 
D)  the number of consumers in the market.

Question 19

Which statement is TRUE of the Sudanese slave trade and the actions of human rights groups?

Accepted Answer

A)  Slave redemption programs are more effective with perfectly elastic supply. 
B)  Slave redemption programs can reduce the net number of slaves held in captivity but only by increasing the number of people who get enslaved. 
C)  Slave redemption programs can reduce the net number of slaves held in captivity by decreasing the demand for slaves. 
D)  Slave redemption programs are ineffective because the demand for slaves is perfectly inelastic, meaning that higher prices of slaves do not affect the quantity demanded. 
A)  Slave redemption programs are more effective with perfectly elastic supply. 
B)  Slave redemption programs can reduce the net number of slaves held in captivity but only by increasing the number of people who get enslaved. 
C)  Slave redemption programs can reduce the net number of slaves held in captivity by decreasing the demand for slaves. 
D)  Slave redemption programs are ineffective because the demand for slaves is perfectly inelastic, meaning that higher prices of slaves do not affect the quantity demanded.

Question 20

The owner of an appliance store lowers the price of dishwashers from $400 to $350, which increases the number of dishwashers sold from 1,000 to 1,200. What is the elasticity of demand?

Accepted Answer

A)  1.25 
B)  1.4 
C)  1.36 
D)  0.73 
A)  1.25 
B)  1.4 
C)  1.36 
D)  0.73

Exam 5: Elasticity and Its Applications

The demand for Michelin tires is ______ elastic than the demand for tires, and the demand for chocolate is ______ elastic than the demand for Godiva chocolate.

If the price of Good Y falls from $10 to $8, and the quantity demanded of it rises from 1,000 units to 1,200 units, the price elasticity of demand expressed in absolute value is:

Figure: Demand 1 In the diagram, what is the elasticity of demand between a price of $100 and $200? Use the midpoint method of calculation to find your answer.

Figure: Price Increase and Elasticity Refer to the figure. If price increases from $10 to $20, total revenue will:

If the price of coffee falls by 10 percent and the quantity supplied of coffee falls by 1.5 percent, then the elasticity of supply of coffee is:

If the demand for currently illegal recreational drugs is highly inelastic and these drugs became legal, prices would fall. An economist would expect which of the following to happen in response to the lower price?

When a shift in demand or supply occurs, economists can make a quick prediction of the change in price. The denominator of the simple price-change formula is the:

Why is the war on drugs hard to win?

If the government raises the minimum wage by 6 percent, the number of people employed falls by 2%. What is the elasticity of employment with respect to the minimum wage?

Walter provides lawn-cutting services and notices that his total revenue increases when he cuts prices. The elasticity of demand for his services is:

When demand is ______, an increase in price ______ total revenue.

The elasticity of demand measures:

The fundamental determinant of the elasticity of supply is how quickly per-unit costs increase with an increase in production.

The elasticity of demand for oil is -0.5 and the elasticity of supply is 0.20. If the demand for oil increases 10 percent, what happens to the price of oil?

The fundamental determinant of the elasticity of demand for a good is:

Which statement is TRUE of the Sudanese slave trade and the actions of human rights groups?

The owner of an appliance store lowers the price of dishwashers from $400 to $350, which increases the number of dishwashers sold from 1,000 to 1,200. What is the elasticity of demand?

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 demand for Michelin tires is elastic than the demand for tires, and the demand for chocolate is elastic than the demand for Godiva chocolate.

When demand is , an increase in price total revenue.