Question 1

The smaller the price elasticity of demand, the

Accepted Answer

A) more likely the product is a luxury. 
B) smaller the responsiveness of quantity demanded to a change in price. 
C) more substitutes the product has. 
D) greater the responsiveness of quantity demanded to a change in price. 
A) more likely the product is a luxury. 
B) smaller the responsiveness of quantity demanded to a change in price. 
C) more substitutes the product has. 
D) greater the responsiveness of quantity demanded to a change in price.

Question 2

A 10 percent increase in gasoline prices reduces gasoline consumption by about

Accepted Answer

A) 6 percent after one year and 2.5 percent after five years. 
B) 2.5 percent after one year and 6 percent after five years. 
C) 10 percent after one year and 20 percent after five years. 
D) 0 percent after one year and 1 percent after five years. 
A) 6 percent after one year and 2.5 percent after five years. 
B) 2.5 percent after one year and 6 percent after five years. 
C) 10 percent after one year and 20 percent after five years. 
D) 0 percent after one year and 1 percent after five years.

Question 3

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

Accepted Answer

A) fall by 8 percent. 
B) fall by 50 percent. 
C) rise by 8 percent. 
D) rise by 50 percent. 
A) fall by 8 percent. 
B) fall by 50 percent. 
C) rise by 8 percent. 
D) rise by 50 percent.

Question 4

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

Accepted Answer

A) increase the price of ice cream. 
B) decrease the price of ice cream. 
C) decrease the cost of operating the ice cream shop. 
D) increase the price of bottled water also sold at the ice cream shop because its price elasticity of demand is 1.2. 
A) increase the price of ice cream. 
B) decrease the price of ice cream. 
C) decrease the cost of operating the ice cream shop. 
D) increase the price of bottled water also sold at the ice cream shop because its price elasticity of demand is 1.2.

Question 5

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a therapeutic massage spa. The first step you would take would be to

Accepted Answer

A) increase the price of all massages. 
B) reduce staff in order to reduce operating costs. 
C) determine the price elasticity of supply for massages. 
D) determine the price elasticity of demand for massages. 
A) increase the price of all massages. 
B) reduce staff in order to reduce operating costs. 
C) determine the price elasticity of supply for massages. 
D) determine the price elasticity of demand for massages.

Question 6

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

Accepted Answer

A) 0.75. 
B) 1.25. 
C) 1.33. 
D) 1.60. 
A) 0.75. 
B) 1.25. 
C) 1.33. 
D) 1.60.

Question 7

Figure 5-9  
-Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point A and point B is

Accepted Answer

A) 0.33. 
B) 0.5. 
C) 2.0. 
D) 3.0. 
A) 0.33. 
B) 0.5. 
C) 2.0. 
D) 3.0.

Question 8

Scenario 5-3
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-3. The change in equilibrium quantity will be

Accepted Answer

A) greater in the aged cheddar cheese market than in the bread market. 
B) greater in the bread market than in the aged cheddar cheese market. 
C) the same in the aged cheddar cheese and bread markets. 
D) Any of the above could be correct. 
A) greater in the aged cheddar cheese market than in the bread market. 
B) greater in the bread market than in the aged cheddar cheese market. 
C) the same in the aged cheddar cheese and bread markets. 
D) Any of the above could be correct.

Question 9

Elasticity measures how responsive quantity is to changes in price.

Accepted Answer

A) True 
 B)False

Question 10

Table 5-11  
-Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run?

Accepted Answer

A) Scenario A describes both the short run and the long run. 
B) Scenario D describes both the short run and the long run. 
C) Scenario D describes the short run, whereas scenario A describes the long run. 
D) Scenario C describes the short run, whereas scenario B describes the long run. 
A) Scenario A describes both the short run and the long run. 
B) Scenario D describes both the short run and the long run. 
C) Scenario D describes the short run, whereas scenario A describes the long run. 
D) Scenario C describes the short run, whereas scenario B describes the long run.

Question 11

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

Accepted Answer

A) The quantity of the good demanded decreases from 250 to 150. 
B) The quantity of the good demanded decreases from 200 to 100. 
C) The quantity of the good demanded decreases by 0.05 percent. 
D) The quantity of the good demanded decreases by 0.2 percent. 
A) The quantity of the good demanded decreases from 250 to 150. 
B) The quantity of the good demanded decreases from 200 to 100. 
C) The quantity of the good demanded decreases by 0.05 percent. 
D) The quantity of the good demanded decreases by 0.2 percent.

Question 12

Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then

Accepted Answer

A) consumers of wheat would buy more wheat. 
B) wheat farmers would suffer a reduction in their total revenue. 
C) wheat farmers would experience an increase in their total revenue. 
D) the demand for wheat would decrease. 
A) consumers of wheat would buy more wheat. 
B) wheat farmers would suffer a reduction in their total revenue. 
C) wheat farmers would experience an increase in their total revenue. 
D) the demand for wheat would decrease.

Question 13

If the demand for bananas is elastic, then an increase in the price of bananas will

Accepted Answer

A) increase total revenue of banana sellers. 
B) decrease total revenue of banana sellers. 
C) not change total revenue of banana sellers. 
D) There is not enough information to answer this question. 
A) increase total revenue of banana sellers. 
B) decrease total revenue of banana sellers. 
C) not change total revenue of banana sellers. 
D) There is not enough information to answer this question.

Question 14

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

Accepted Answer

A) the availability of close substitutes in determining the price elasticity of demand. 
B) a necessity versus a luxury in determining the price elasticity of demand. 
C) the definition of a market in determining the price elasticity of demand. 
D) the time horizon in determining the price elasticity of demand. 
A) the availability of close substitutes in determining the price elasticity of demand. 
B) a necessity versus a luxury in determining the price elasticity of demand. 
C) the definition of a market in determining the price elasticity of demand. 
D) the time horizon in determining the price elasticity of demand.

Question 15

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

Accepted Answer

A) 0.22. 
B) 0.67. 
C) 1.33. 
D) 1.50. 
A) 0.22. 
B) 0.67. 
C) 1.33. 
D) 1.50.

Question 16

The midpoint method for calculating elasticities is convenient in that it allows us to

Accepted Answer

A) ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price. 
B) calculate the same value for the elasticity, regardless of whether the price increases or decreases. 
C) assume that sellers' total revenue stays constant when the price changes. 
D) restrict all elasticity values to between 0 and 1. 
A) ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price. 
B) calculate the same value for the elasticity, regardless of whether the price increases or decreases. 
C) assume that sellers' total revenue stays constant when the price changes. 
D) restrict all elasticity values to between 0 and 1.

Question 17

As the price elasticity of supply approaches infinity, very small changes in price lead to

Accepted Answer

A) very large changes in quantity supplied. 
B) very small changes in quantity supplied. 
C) no change in quantity supplied. 
D) None of the above is correct. 
A) very large changes in quantity supplied. 
B) very small changes in quantity supplied. 
C) no change in quantity supplied. 
D) None of the above is correct.

Question 18

Suppose a market has the demand function Qd=20-0.5P. Between which of the following price ranges is demand most inelastic?

Accepted Answer

A) $0 to $10 
B) $10 to $20 
C) $20 to $30 
D) $30 to $40 
A) $0 to $10 
B) $10 to $20 
C) $20 to $30 
D) $30 to $40

Question 19

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

Accepted Answer

A) True 
 B)False

Question 20

If the price elasticity of demand for a good is 0.3, then a 20 percent decrease in price results in a

Accepted Answer

A) 0.015 percent increase in the quantity demanded. 
B) 0.6 percent increase in the quantity demanded. 
C) 6 percent increase in the quantity demanded. 
D) 66 percent increase in the quantity demanded. 
A) 0.015 percent increase in the quantity demanded. 
B) 0.6 percent increase in the quantity demanded. 
C) 6 percent increase in the quantity demanded. 
D) 66 percent increase in the quantity demanded.

Exam 5: Elasticity and Its Application

The smaller the price elasticity of demand, the

A 10 percent increase in gasoline prices reduces gasoline consumption by about

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a therapeutic massage spa. The first step you would take would be to

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

Figure 5-9 -Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point A and point B is

Elasticity measures how responsive quantity is to changes in price.

Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run?

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then

If the demand for bananas is elastic, then an increase in the price of bananas will

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

The midpoint method for calculating elasticities is convenient in that it allows us to

As the price elasticity of supply approaches infinity, very small changes in price lead to

Suppose a market has the demand function Qd=20-0.5P. Between which of the following price ranges is demand most inelastic?

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

If the price elasticity of demand for a good is 0.3, then a 20 percent decrease in price results in a

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

Suppose a market has the demand function Q^d=20-0.5P. Between which of the following price ranges is demand most inelastic?