Question 1

In which of these instances is demand said to be perfectly inelastic?

Accepted Answer

A) An increase in price of 2% causes a decrease in quantity demanded of 2%. 
B) A decrease in price of 2% causes an increase in quantity demanded of 0%. 
C) A decrease in price of 2% causes a decrease in total revenue of 0%. 
D) An increase in price of 2% causes a decrease in quantity demanded of 1/2%. 
A) An increase in price of 2% causes a decrease in quantity demanded of 2%. 
B) A decrease in price of 2% causes an increase in quantity demanded of 0%. 
C) A decrease in price of 2% causes a decrease in total revenue of 0%. 
D) An increase in price of 2% causes a decrease in quantity demanded of 1/2%.

Question 2

Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

Accepted Answer

A) unit elastic. 
B) inelastic. 
C) elastic. 
D) None of the above is correct because a price decrease never leads to an decrease in total revenue. 
A) unit elastic. 
B) inelastic. 
C) elastic. 
D) None of the above is correct because a price decrease never leads to an decrease in total revenue.

Question 3

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

Accepted Answer

A) elastic, and the demand curve will be horizontal. 
B) inelastic, and the demand curve will be horizontal. 
C) elastic, and the demand curve will be vertical. 
D) inelastic, and the demand curve will be vertical. 
A) elastic, and the demand curve will be horizontal. 
B) inelastic, and the demand curve will be horizontal. 
C) elastic, and the demand curve will be vertical. 
D) inelastic, and the demand curve will be vertical.

Question 4

Economists compute the price elasticity of demand as the

Accepted Answer

A) percentage change in price divided by the percentage change in quantity demanded. 
B) change in quantity demanded divided by the change in the price. 
C) percentage change in quantity demanded divided by the percentage change in price. 
D) percentage change in quantity demanded divided by the percentage change in income. 
A) percentage change in price divided by the percentage change in quantity demanded. 
B) change in quantity demanded divided by the change in the price. 
C) percentage change in quantity demanded divided by the percentage change in price. 
D) percentage change in quantity demanded divided by the percentage change in income.

Question 5

At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

Accepted Answer

A) 1.14. 
B) 1.00. 
C) 0.875. 
D) 0.50. 
A) 1.14. 
B) 1.00. 
C) 0.875. 
D) 0.50.

Question 6

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

Accepted Answer

A) cross-price elasticity of demand is negative. 
B) price elasticity of demand is elastic. 
C) income elasticity of demand is negative. 
D) income elasticity of demand is positive. 
A) cross-price elasticity of demand is negative. 
B) price elasticity of demand is elastic. 
C) income elasticity of demand is negative. 
D) income elasticity of demand is positive.

Question 7

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a

Accepted Answer

A) 0.1 percent increase in the quantity demanded. 
B) 1 percent increase in the quantity demanded. 
C) 3 percent increase in the quantity demanded. 
D) 4 percent increase in the quantity demanded. 
A) 0.1 percent increase in the quantity demanded. 
B) 1 percent increase in the quantity demanded. 
C) 3 percent increase in the quantity demanded. 
D) 4 percent increase in the quantity demanded.

Question 8

Suppose a freeze in Florida significantly reduces the supply of oranges this year. As a result, would you expect the total revenue from the sale of orange juice to rise or fall? Explain.

Accepted Answer

Since oranges are an input into the prod

Question 9

Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to changes in prices or income.

Accepted Answer

A) True 
 B)False

Question 10

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. Is a restaurant meal a normal or inferior good to the couple?

Accepted Answer

The income elasticity of deman

Question 11

When quantity demanded responds strongly to changes in price, demand is said to be

Accepted Answer

A) fluid. 
B) elastic. 
C) dynamic. 
D) highly variable. 
A) fluid. 
B) elastic. 
C) dynamic. 
D) highly variable.

Question 12

Figure 5-8  
-Refer to Figure 5-8. An increase in price from $15 to $20 would

Accepted Answer

A) increase total revenue by $500 
B) decrease total revenue by $500. 
C) increase total revenue by $1,000. 
D) decrease total revenue by $1,000. 
A) increase total revenue by $500 
B) decrease total revenue by $500. 
C) increase total revenue by $1,000. 
D) decrease total revenue by $1,000.

Question 13

The supply of a good will be more elastic, the

Accepted Answer

A) more the good is considered a luxury. 
B) broader is the definition of the market for the good. 
C) larger the number of close substitutes for the good. 
D) longer the time period being considered. 
A) more the good is considered a luxury. 
B) broader is the definition of the market for the good. 
C) larger the number of close substitutes for the good. 
D) longer the time period being considered.

Question 14

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is

Accepted Answer

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

Question 15

For which of the following goods is the income elasticity of demand likely highest?

Accepted Answer

A) tennis lessons 
B) allergy medication 
C) clothing 
D) cell phone contracts 
A) tennis lessons 
B) allergy medication 
C) clothing 
D) cell phone contracts

Question 16

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase by

Accepted Answer

A) 0.4% in the short run and 4.6% in the long run. 
B) 1.7% in the short run and 0.7% in the long run. 
C) 9% in the short run and 21% in the long run. 
D) 25% in the short run and 10.7% in the long run. 
A) 0.4% in the short run and 4.6% in the long run. 
B) 1.7% in the short run and 0.7% in the long run. 
C) 9% in the short run and 21% in the long run. 
D) 25% in the short run and 10.7% in the long run.

Question 17

If the price elasticity of demand is equal to 1, then demand is unit elastic.

Accepted Answer

A) True 
 B)False

Question 18

When demand is inelastic, a decrease in price increases total revenue.

Accepted Answer

A) True 
 B)False

Question 19

Figure 5-16  
-Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $4 and $6?

Accepted Answer

A) 0.75 
B) 1.00 
C) 1.20 
D) 1.25 
A) 0.75 
B) 1.00 
C) 1.20 
D) 1.25

Question 20

The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt are substitutes.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

In which of these instances is demand said to be perfectly inelastic?

Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

Economists compute the price elasticity of demand as the

At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a

Suppose a freeze in Florida significantly reduces the supply of oranges this year. As a result, would you expect the total revenue from the sale of orange juice to rise or fall? Explain.

Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to changes in prices or income.

When quantity demanded responds strongly to changes in price, demand is said to be

Figure 5-8 -Refer to Figure 5-8. An increase in price from $15 to $20 would

The supply of a good will be more elastic, the

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is

For which of the following goods is the income elasticity of demand likely highest?

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase by

If the price elasticity of demand is equal to 1, then demand is unit elastic.

When demand is inelastic, a decrease in price increases total revenue.

Figure 5-16 -Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $4 and $6?

The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt 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

Filters