Question 1

Which of the following statements is correct?

Accepted Answer

A) The demand for natural gas is more elastic over a short period of time than over a long period of time. 
B) The demand for smoke alarms is more elastic than the demand for Persian rugs. 
C) The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. 
D) All of the above are correct. 
A) The demand for natural gas is more elastic over a short period of time than over a long period of time. 
B) The demand for smoke alarms is more elastic than the demand for Persian rugs. 
C) The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. 
D) All of the above are correct.

Question 2

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is

Accepted Answer

A) 0.11. 
B) 0.47. 
C) 1.12. 
D) 2.11. 
A) 0.11. 
B) 0.47. 
C) 1.12. 
D) 2.11.

Question 3

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?

Accepted Answer

A) 0.6 
B) 0.9 
C) 1 
D) 2.6 
A) 0.6 
B) 0.9 
C) 1 
D) 2.6

Question 4

In which of the following situations will total revenue increase?

Accepted Answer

A) Price elasticity of demand is 1.2, and the price of the good decreases. 
B) Price elasticity of demand is 0.5, and the price of the good increases. 
C) Price elasticity of demand is 3.0, and the price of the good decreases. 
D) All of the above are correct. 
A) Price elasticity of demand is 1.2, and the price of the good decreases. 
B) Price elasticity of demand is 0.5, and the price of the good increases. 
C) Price elasticity of demand is 3.0, and the price of the good decreases. 
D) All of the above are correct.

Question 5

If the cross-price elasticity of demand between two goods is negative, what is the relationship between the two goods?

Accepted Answer

The goods

Question 6

Table 5-1  
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Accepted Answer

A) A is laundry detergent and B is Tide. 
B) A is Diet Pepsi and B is soda. 
C) A is food and B is a yacht. 
D) A is toilet paper and B is candles. 
A) A is laundry detergent and B is Tide. 
B) A is Diet Pepsi and B is soda. 
C) A is food and B is a yacht. 
D) A is toilet paper and B is candles.

Question 7

If two goods are complements, their cross-price elasticity will be

Accepted Answer

A) positive. 
B) negative. 
C) zero. 
D) equal to the difference between the income elasticities of demand for the two goods. 
A) positive. 
B) negative. 
C) zero. 
D) equal to the difference between the income elasticities of demand for the two goods.

Question 8

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

Accepted Answer

A) increase the price of every loaf of bread in the store. 
B) look for ways to cut costs and increase profit for the bakery. 
C) determine the price elasticity of demand for the bakery's products. 
D) determine the price elasticity of supply for the bakery's products. 
A) increase the price of every loaf of bread in the store. 
B) look for ways to cut costs and increase profit for the bakery. 
C) determine the price elasticity of demand for the bakery's products. 
D) determine the price elasticity of supply for the bakery's products.

Question 9

Table 5-1  
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Accepted Answer

A) A is pens and B is pencils. 
B) A is a Snickers bar and B is a Milky Way bar. 
C) A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler. 
D) A is a bottle of water demanded by a tourist in a desert and B is a bottle of water demanded by a tourist in a rain forest. 
A) A is pens and B is pencils. 
B) A is a Snickers bar and B is a Milky Way bar. 
C) A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler. 
D) A is a bottle of water demanded by a tourist in a desert and B is a bottle of water demanded by a tourist in a rain forest.

Question 10

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price elastic demand?

Accepted Answer

The answer of Suppose that good X is a luxury...

Question 11

Suppose that an increase in the price of melons from $1.30 to $1.80 per pound increases the quantity of melons that melon farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what is the approximate value of the price elasticity of supply?

Accepted Answer

A) 0.67 
B) 0.89 
C) 1.00 
D) 1.13 
A) 0.67 
B) 0.89 
C) 1.00 
D) 1.13

Question 12

Table 5-6  
-Refer to Table 5-6. Using the midpoint method, demand is unit elastic when quantity demanded changes from

Accepted Answer

A) 500 to 400. 
B) 400 to 300. 
C) 300 to 200. 
D) 200 to 100. 
A) 500 to 400. 
B) 400 to 300. 
C) 300 to 200. 
D) 200 to 100.

Question 13

When demand is inelastic, the price elasticity of demand is

Accepted Answer

A) less than 1, and price and total revenue will move in the same direction. 
B) less than 1, and price and total revenue will move in opposite directions. 
C) greater than 1, and price and total revenue will move in the same direction. 
D) greater than 1, and price and total revenue will move in opposite directions. 
A) less than 1, and price and total revenue will move in the same direction. 
B) less than 1, and price and total revenue will move in opposite directions. 
C) greater than 1, and price and total revenue will move in the same direction. 
D) greater than 1, and price and total revenue will move in opposite directions.

Question 14

Figure 5-5  
-Refer to Figure 5-5. Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about

Accepted Answer

A) 0.33. 
B) 0.4. 
C) 1.33. 
D) 3. 
A) 0.33. 
B) 0.4. 
C) 1.33. 
D) 3.

Question 15

Demand is said to be inelastic if the

Accepted Answer

A) quantity demanded changes proportionately more than price. 
B) price changes proportionately more than income. 
C) quantity demanded changes proportionately less than price. 
D) quantity demanded changes proportionately the same as price. 
A) quantity demanded changes proportionately more than price. 
B) price changes proportionately more than income. 
C) quantity demanded changes proportionately less than price. 
D) quantity demanded changes proportionately the same as price.

Question 16

Scenario 5-2
Suppose the demand function for good X is given by:   where   is the quantity demanded of good X,   is the price of good X, and   is the price of good Y, which is related to good X.
-Refer to Scenario 5-2. Using the midpoint method, if the price of good X is $10 and the price of good Y increases from $8 to $10, the cross price elasticity of demand is about

Accepted Answer

The answer of Scenario 5-2
Suppose the demand function for good...

Question 17

Figure 5-8  
-Refer to Figure 5-8. When price falls from $25 to $20, demand is

Accepted Answer

A) inelastic, since total revenue decreases from $4,000 to $2,500. 
B) inelastic, since total revenue increases from $2,500 to $4,000. 
C) elastic, since total revenue increases from $2,500 to $4,000. 
D) unit elastic, since total revenue does not change. 
A) inelastic, since total revenue decreases from $4,000 to $2,500. 
B) inelastic, since total revenue increases from $2,500 to $4,000. 
C) elastic, since total revenue increases from $2,500 to $4,000. 
D) unit elastic, since total revenue does not change.

Question 18

Figure 5-17  
-Refer to Figure 5-17. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

Accepted Answer

A) increase. 
B) decrease. 
C) remain unchanged. 
D) The effect on total revenue cannot be determined from the given information. 
A) increase. 
B) decrease. 
C) remain unchanged. 
D) The effect on total revenue cannot be determined from the given information.

Question 19

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

Accepted Answer

A) 0.2 percent decrease in the quantity demanded. 
B) 5 percent decrease in the quantity demanded. 
C) 20 percent decrease in the quantity demanded. 
D) 40 percent decrease in the quantity demanded. 
A) 0.2 percent decrease in the quantity demanded. 
B) 5 percent decrease in the quantity demanded. 
C) 20 percent decrease in the quantity demanded. 
D) 40 percent decrease in the quantity demanded.

Question 20

If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

Which of the following statements is correct?

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?

In which of the following situations will total revenue increase?

If the cross-price elasticity of demand between two goods is negative, what is the relationship between the two goods?

Table 5-1 -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

If two goods are complements, their cross-price elasticity will be

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

Table 5-1 -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price elastic demand?

Suppose that an increase in the price of melons from $1.30 to $1.80 per pound increases the quantity of melons that melon farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what is the approximate value of the price elasticity of supply?

Table 5-6 -Refer to Table 5-6. Using the midpoint method, demand is unit elastic when quantity demanded changes from

When demand is inelastic, the price elasticity of demand is

Figure 5-5 -Refer to Figure 5-5. Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about

Demand is said to be inelastic if the

Figure 5-8 -Refer to Figure 5-8. When price falls from $25 to $20, demand is

Figure 5-17 -Refer to Figure 5-17. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.

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

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