Question 1

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 2

Scenario 5-4
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-4. The equilibrium quantity will

Accepted Answer

A) increase in both the milk and beef markets. 
B) increase in the milk market and decrease in the beef market. 
C) decrease in the milk market and increase in the beef market. 
D) decrease in both the milk and beef markets. 
A) increase in both the milk and beef markets. 
B) increase in the milk market and decrease in the beef market. 
C) decrease in the milk market and increase in the beef market. 
D) decrease in both the milk and beef markets.

Question 3

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

Accepted Answer

A) lower the price of the cinnamon rolls. 
B) leave the price of the cinnamon rolls unchanged. 
C) raise the price of the cinnamon rolls. 
D) reduce costs. 
A) lower the price of the cinnamon rolls. 
B) leave the price of the cinnamon rolls unchanged. 
C) raise the price of the cinnamon rolls. 
D) reduce costs.

Question 4

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Accepted Answer

A) all inferior goods 
B) all normal goods 
C) goods for which there are many complements 
D) luxuries 
A) all inferior goods 
B) all normal goods 
C) goods for which there are many complements 
D) luxuries

Question 5

Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

Accepted Answer

A) steeper the demand curve will be. 
B) flatter the demand curve will be. 
C) further to the right the demand curve will sit. 
D) closer to the vertical axis the demand curve will sit. 
A) steeper the demand curve will be. 
B) flatter the demand curve will be. 
C) further to the right the demand curve will sit. 
D) closer to the vertical axis the demand curve will sit.

Question 6

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

Accepted Answer

A) 1.5% in the short run and 6% in the long run. 
B) 6% in the short run and 1.5% in the long run. 
C) 16.7% in the short run and 4.2% in the long run. 
D) 4.2% in the short run and 16.7% in the long run. 
A) 1.5% in the short run and 6% in the long run. 
B) 6% in the short run and 1.5% in the long run. 
C) 16.7% in the short run and 4.2% in the long run. 
D) 4.2% in the short run and 16.7% in the long run.

Question 7

Figure 5-2  
-Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

Accepted Answer

A) D1 
B) D2 
C) D3 
D) All of the above are equally elastic. 
A) D1 
B) D2 
C) D3 
D) All of the above are equally elastic.

Question 8

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

Accepted Answer

A) peanut butter and jelly 
B) celery and coffee 
C) pens and pencils 
D) iPods and iPads 
A) peanut butter and jelly 
B) celery and coffee 
C) pens and pencils 
D) iPods and iPads

Question 9

Suppose demand is given by the equation:   
Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Accepted Answer

The price

Question 10

Figure 5-4  
-Refer to Figure 5-4. Suppose the point labeled B is the "halfway point" on the demand curve and it corresponds to a price of $5.00. Then, between prices of $4.99 and $5.01, the price elasticity of demand is

Accepted Answer

A) less than 1 but greater than zero. 
B) equal to 1. 
C) greater than 1. 
D) equal to zero. 
A) less than 1 but greater than zero. 
B) equal to 1. 
C) greater than 1. 
D) equal to zero.

Question 11

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Accepted Answer

A) inelastic and equal to 6. 
B) elastic and equal to 6. 
C) inelastic and equal to 0.17. 
D) elastic and equal to 0.17. 
A) inelastic and equal to 6. 
B) elastic and equal to 6. 
C) inelastic and equal to 0.17. 
D) elastic and equal to 0.17.

Question 12

When studying how some event or policy affects a market, elasticity provides information on the

Accepted Answer

A) change in the costs of production. 
B) tradeoff between equality and efficiency. 
C) effect on the budget deficit or surplus. 
D) direction and magnitude of the effect. 
A) change in the costs of production. 
B) tradeoff between equality and efficiency. 
C) effect on the budget deficit or surplus. 
D) direction and magnitude of the effect.

Question 13

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

Accepted Answer

A) subscriptions to premium movie channels through the local cable television provider 
B) hi-definition DVD players 
C) champagne 
D) housing 
A) subscriptions to premium movie channels through the local cable television provider 
B) hi-definition DVD players 
C) champagne 
D) housing

Question 14

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A) The relevant time horizon is short. 
B) The good is a luxury. 
C) The market for the good is narrowly defined. 
D) There are many close substitutes for this good. 
A) The relevant time horizon is short. 
B) The good is a luxury. 
C) The market for the good is narrowly defined. 
D) There are many close substitutes for this good.

Question 15

If we observe that when the price of chocolate candy bars increases by 10%, quantity demanded decreases total by 10%, then the demand for chocolate candy bars is unit price elastic.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Figure 5-6  
-Refer to Figure 5-6. For prices below $8, demand is price

Accepted Answer

A) elastic, and total revenue will rise as price rises. 
B) inelastic, and total revenue will rise as price rises. 
C) elastic, and total revenue will fall as price rises. 
D) inelastic, and total revenue will fall as price rises. 
A) elastic, and total revenue will rise as price rises. 
B) inelastic, and total revenue will rise as price rises. 
C) elastic, and total revenue will fall as price rises. 
D) inelastic, and total revenue will fall as price rises.

Question 18

At a price of $1.20, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.40, 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) 0.15 
B) 0.375 
C) 2.5 
D) 2.60 
A) 0.15 
B) 0.375 
C) 2.5 
D) 2.60

Question 19

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?

Accepted Answer

A) The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. 
B) The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. 
C) Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. 
D) A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant. 
A) The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. 
B) The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. 
C) Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. 
D) A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant.

Question 20

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Scenario 5-4 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-4. The equilibrium quantity will

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

Figure 5-2 -Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

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

Suppose demand is given by the equation: Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Figure 5-4 -Refer to Figure 5-4. Suppose the point labeled B is the "halfway point" on the demand curve and it corresponds to a price of $5.00. Then, between prices of $4.99 and $5.01, the price elasticity of demand is

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

When studying how some event or policy affects a market, elasticity provides information on the

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

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

If we observe that when the price of chocolate candy bars increases by 10%, quantity demanded decreases total by 10%, then the demand for chocolate candy bars is unit price elastic.

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

Figure 5-6 -Refer to Figure 5-6. For prices below $8, demand is price

At a price of $1.20, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.40, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

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

Applications: 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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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