Question 1

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

Accepted Answer

A) True 
 B)False

Question 2

For which pairs of goods is the cross-price elasticity most likely to be positive?

Accepted Answer

A) peanut butter and jelly 
B) bicycle frames and bicycle tires 
C) pens and pencils 
D) college textbooks and iPods 
A) peanut butter and jelly 
B) bicycle frames and bicycle tires 
C) pens and pencils 
D) college textbooks and iPods

Question 3

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to

Accepted Answer

A) increase by 2.5%, and X is an inferior good. 
B) decrease by 2.5% and X is a normal good. 
C) increase by 10% and X is an inferior good. 
D) decrease by 10% and X is a normal good. 
A) increase by 2.5%, and X is an inferior good. 
B) decrease by 2.5% and X is a normal good. 
C) increase by 10% and X is an inferior good. 
D) decrease by 10% and X is a normal good.

Question 4

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

Accepted Answer

A) 0.02. 
B) 0.33. 
C) 3. 
D) 4. 
A) 0.02. 
B) 0.33. 
C) 3. 
D) 4.

Question 5

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 constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about

Accepted Answer

A) 0.57, and X and Y are substitutes. 
B) -0.22, and X and Y are complements. 
C) -0.80, and X and Y are complements. 
D) -2.57, and X and Y are complements. 
A) 0.57, and X and Y are substitutes. 
B) -0.22, and X and Y are complements. 
C) -0.80, and X and Y are complements. 
D) -2.57, and X and Y are complements.

Question 6

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

Accepted Answer

A) True 
 B)False

Question 7

A candle manufacturer produces 4,000 units when the market price is $11 per unit and produces 6,000 units when the market price is $13 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

Accepted Answer

A) 6. 
B) 2.4. 
C) 0.4. 
D) 0.67. 
A) 6. 
B) 2.4. 
C) 0.4. 
D) 0.67.

Question 8

Figure 5-9  
-Refer to Figure 5-9. If the price rises from point D to point C, total revenue

Accepted Answer

A) increases, and demand is price elastic. 
B) decreases, and demand is price elastic. 
C) increases, and demand is price inelastic. 
D) decreases, and demand is price inelastic. 
A) increases, and demand is price elastic. 
B) decreases, and demand is price elastic. 
C) increases, and demand is price inelastic. 
D) decreases, and demand is price inelastic.

Question 9

Which of the following statements is not valid when the market supply curve is vertical?

Accepted Answer

A) Market quantity supplied does not change when the price changes. 
B) Supply is perfectly inelastic. 
C) An increase in market demand will increase the equilibrium quantity. 
D) An increase in market demand will increase the equilibrium price. 
A) Market quantity supplied does not change when the price changes. 
B) Supply is perfectly inelastic. 
C) An increase in market demand will increase the equilibrium quantity. 
D) An increase in market demand will increase the equilibrium price.

Question 10

Suppose good X has a negative income elasticity of demand. This implies that good X is

Accepted Answer

A) a normal good. 
B) a necessity. 
C) an inferior good. 
D) a luxury. 
A) a normal good. 
B) a necessity. 
C) an inferior good. 
D) a luxury.

Question 11

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of corn.

Accepted Answer

A) True 
 B)False

Question 12

Figure 5-5  
-Refer to Figure 5-5. Using the midpoint method, between prices of $50 and $60, price elasticity of demand is about

Accepted Answer

A) 0.22. 
B) 0.82. 
C) 1.22. 
D) 2. 
A) 0.22. 
B) 0.82. 
C) 1.22. 
D) 2.

Question 13

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

Accepted Answer

A) True 
 B)False

Question 14

Figure 5-8  
-Refer to Figure 5-8. An increase in price from $10 to $15 would

Accepted Answer

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

Question 15

If a change in the price of a good results in no change in total revenue, then

Accepted Answer

A) the demand for the good must be elastic. 
B) the demand for the good must be inelastic. 
C) the demand for the good must be unit elastic. 
D) buyers must not respond very much to a change in price. 
A) the demand for the good must be elastic. 
B) the demand for the good must be inelastic. 
C) the demand for the good must be unit elastic. 
D) buyers must not respond very much to a change in price.

Question 16

Suppose the price elasticity of demand for a product is 0.5. If a supplier wants to increase revenue, what change should it make to price, if any?

Accepted Answer

The answer of Suppose the price elasticity of demand for...

Question 17

Which of the following expressions can be used to compute the price elasticity of demand?

Accepted Answer

A) Price elasticity of demand =  
•  
) 
B) Price elasticity of demand =  
•  
) 
C) Price elasticity of demand =  
•  
) 
D) Price elasticity of demand =  
•  
) 
A) Price elasticity of demand =  
•  
) 
B) Price elasticity of demand =  
•  
) 
C) Price elasticity of demand =  
•  
) 
D) Price elasticity of demand =  
•  
)

Question 18

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about

Accepted Answer

A) 1.29, and a decrease in price from $200 to $160 results in an increase in total revenue. 
B) 1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue. 
C) 0.78, and a decrease in price from $200 to $160 results in an increase in total revenue. 
D) 0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue. 
A) 1.29, and a decrease in price from $200 to $160 results in an increase in total revenue. 
B) 1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue. 
C) 0.78, and a decrease in price from $200 to $160 results in an increase in total revenue. 
D) 0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue.

Question 19

Figure 5-3  
-Refer to Figure 5-3. The demand curve representing the demand for a luxury good with several close substitutes is

Accepted Answer

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

Question 20

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

Accepted Answer

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

Exam 5: Elasticity and Its Application

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

For which pairs of goods is the cross-price elasticity most likely to be positive?

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

A candle manufacturer produces 4,000 units when the market price is $11 per unit and produces 6,000 units when the market price is $13 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

Figure 5-9 -Refer to Figure 5-9. If the price rises from point D to point C, total revenue

Which of the following statements is not valid when the market supply curve is vertical?

Suppose good X has a negative income elasticity of demand. This implies that good X is

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of corn.

Figure 5-5 -Refer to Figure 5-5. Using the midpoint method, between prices of $50 and $60, price elasticity of demand is about

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

Figure 5-8 -Refer to Figure 5-8. An increase in price from $10 to $15 would

If a change in the price of a good results in no change in total revenue, then

Suppose the price elasticity of demand for a product is 0.5. If a supplier wants to increase revenue, what change should it make to price, if any?

Which of the following expressions can be used to compute the price elasticity of demand?

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about

Figure 5-3 -Refer to Figure 5-3. The demand curve representing the demand for a luxury good with several close substitutes is

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

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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