Question 1

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

Accepted Answer

A) ignoring the law of demand. 
B) assuming that the demand for university education is elastic. 
C) assuming that the demand for university education is inelastic. 
D) assuming that the supply of university education is elastic. 
A) ignoring the law of demand. 
B) assuming that the demand for university education is elastic. 
C) assuming that the demand for university education is inelastic. 
D) assuming that the supply of university education is elastic.

Question 2

A decrease in supply will cause the largest increase in price when

Accepted Answer

A) both supply and demand are inelastic. 
B) both supply and demand are elastic. 
C) demand is elastic and supply is inelastic. 
D) demand is inelastic and supply is elastic. 
A) both supply and demand are inelastic. 
B) both supply and demand are elastic. 
C) demand is elastic and supply is inelastic. 
D) demand is inelastic and supply is elastic.

Question 3

A linear, upward-sloping supply curve has

Accepted Answer

A) a constant slope and a changing price elasticity of supply. 
B) a changing slope and a constant price elasticity of supply. 
C) both a constant slope and a constant price elasticity of supply. 
D) both a changing slope and a changing price elasticity of supply. 
A) a constant slope and a changing price elasticity of supply. 
B) a changing slope and a constant price elasticity of supply. 
C) both a constant slope and a constant price elasticity of supply. 
D) both a changing slope and a changing price elasticity of supply.

Question 4

If the quantity supplied is exactly the same regardless of the price, supply is

Accepted Answer

perfectly

Question 5

Which of the following is likely to have the most price inelastic demand?

Accepted Answer

A) chocolate 
B) Godiva chocolate 
C) Hershey's chocolate 
D) All three would have the same elasticity of demand because they are all related. 
A) chocolate 
B) Godiva chocolate 
C) Hershey's chocolate 
D) All three would have the same elasticity of demand because they are all related.

Question 6

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by 20%. The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

A) True 
 B)False

Question 7

Drug-interdiction policies that reduce the supply of illegal drugs

Accepted Answer

A) are likely to be more effective in the short run than in the long run. 
B) are proven to reduce illegal drug use faster than drug-education programs designed to reduce demand. 
C) may increase drug-related crimes. 
D) All of the above are correct. 
A) are likely to be more effective in the short run than in the long run. 
B) are proven to reduce illegal drug use faster than drug-education programs designed to reduce demand. 
C) may increase drug-related crimes. 
D) All of the above are correct.

Question 8

Suppose demand is given by the equation:   Using the midpoint method, what is the price elasticity of demand between $2 and $4?

Accepted Answer

The price

Question 9

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

Accepted Answer

A) 2 percent more concerts. 
B) 5 percent more concerts. 
C) 10 percent more concerts. 
D) 20 percent more concerts. 
A) 2 percent more concerts. 
B) 5 percent more concerts. 
C) 10 percent more concerts. 
D) 20 percent more concerts.

Question 10

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

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 11

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about

Accepted Answer

A) 0.45 
B) 0.90 
C) 1.11 
D) 2.20 
A) 0.45 
B) 0.90 
C) 1.11 
D) 2.20

Question 12

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

Accepted Answer

A) True 
 B)False

Question 13

Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users?

Accepted Answer

A) The interdiction has the effect of shifting the demand curve for illegal drugs to the right. 
B) The price elasticity of demand for illegal drugs is 1.3. 
C) The price elasticity of supply for illegal drugs is 0.8. 
D) As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity of illegal drugs sold decreases by 16 percent. 
A) The interdiction has the effect of shifting the demand curve for illegal drugs to the right. 
B) The price elasticity of demand for illegal drugs is 1.3. 
C) The price elasticity of supply for illegal drugs is 0.8. 
D) As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity of illegal drugs sold decreases by 16 percent.

Question 14

Total revenue

Accepted Answer

A) always increases as price increases. 
B) increases as price increases, as long as demand is elastic. 
C) decreases as price increases, as long as demand is inelastic. 
D) remains unchanged as price increases when demand is unit elastic. 
A) always increases as price increases. 
B) increases as price increases, as long as demand is elastic. 
C) decreases as price increases, as long as demand is inelastic. 
D) remains unchanged as price increases when demand is unit elastic.

Question 15

Which of the following statements about agriculture in the U.S. is correct?

Accepted Answer

A) Technological improvements typically increase both supply and revenue for individual farmers. 
B) Technological improvements that increased supply, coupled with inelastic demand for foodstuffs, explain why the number of farmers has decreased dramatically over the last century. 
C) Because technological improvements increase the supply of a product for which demand is inelastic, an individual farmer would be better off not adopting the new technology. 
D) All of the above are correct. 
A) Technological improvements typically increase both supply and revenue for individual farmers. 
B) Technological improvements that increased supply, coupled with inelastic demand for foodstuffs, explain why the number of farmers has decreased dramatically over the last century. 
C) Because technological improvements increase the supply of a product for which demand is inelastic, an individual farmer would be better off not adopting the new technology. 
D) All of the above are correct.

Question 16

How did the farm population in the United States change between 1950 and today?

Accepted Answer

A) It dropped from 10 million to fewer than 3 million people. 
B) It dropped from 20 million to fewer than 5 million people. 
C) It dropped from 30 million to just over 6 million people. 
D) It increased from 10 million to almost 13 million people. 
A) It dropped from 10 million to fewer than 3 million people. 
B) It dropped from 20 million to fewer than 5 million people. 
C) It dropped from 30 million to just over 6 million people. 
D) It increased from 10 million to almost 13 million people.

Question 17

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

A) The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. 
B) Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. 
C) Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. 
D) All of the above are correct. 
A) The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. 
B) Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. 
C) Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. 
D) All of the above are correct.

Question 18

Figure 5-10  
-Refer to Figure 5-10. If rectangle D is larger than rectangle A, then

Accepted Answer

A) demand is elastic between prices P1 and P2. 
B) a decrease in price from P2 to P1 will cause an increase in total revenue. 
C) the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded. 
D) All of the above are correct. 
A) demand is elastic between prices P1 and P2. 
B) a decrease in price from P2 to P1 will cause an increase in total revenue. 
C) the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded. 
D) All of the above are correct.

Question 19

If the cross-price elasticity of demand for two goods is 1.25, then

Accepted Answer

A) the two goods are luxuries. 
B) the two goods are substitutes. 
C) one of the goods is normal and the other good is inferior. 
D) the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand. 
A) the two goods are luxuries. 
B) the two goods are substitutes. 
C) one of the goods is normal and the other good is inferior. 
D) the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.

Question 20

If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a

Accepted Answer

A) 0.33 percent increase in the quantity demanded. 
B) 3 percent increase in the quantity demanded. 
C) 30 percent increase in the quantity demanded. 
D) 48 percent increase in the quantity demanded. 
A) 0.33 percent increase in the quantity demanded. 
B) 3 percent increase in the quantity demanded. 
C) 30 percent increase in the quantity demanded. 
D) 48 percent increase in the quantity demanded.

Exam 5: Elasticity and Its Application

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

A decrease in supply will cause the largest increase in price when

A linear, upward-sloping supply curve has

If the quantity supplied is exactly the same regardless of the price, supply is

Which of the following is likely to have the most price inelastic demand?

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by 20%. The price elasticity of demand for this good is equal to 2.0.

Drug-interdiction policies that reduce the supply of illegal drugs

Suppose demand is given by the equation: Using the midpoint method, what is the price elasticity of demand between $2 and $4?

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

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

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users?

Total revenue

Which of the following statements about agriculture in the U.S. is correct?

How did the farm population in the United States change between 1950 and today?

Which of the following statements about the price elasticity of demand is correct?

Figure 5-10 -Refer to Figure 5-10. If rectangle D is larger than rectangle A, then

If the cross-price elasticity of demand for two goods is 1.25, then

If the price elasticity of demand for a good is 4, then a 12 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

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