Question 1

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 2

Suppose a market has the demand function Qd=20-0.5P. At what price will total revenue be maximized?

Accepted Answer

Question 3

OPEC has coordinated a reduction in supply that was

Accepted Answer

A) effective in insulating the members from the decrease in demand in the late 2000s. 
B) more profitable in the long run than in the short run. 
C) profitable in both the short run and the long run. 
D) more profitable in the short run than in the long run. 
A) effective in insulating the members from the decrease in demand in the late 2000s. 
B) more profitable in the long run than in the short run. 
C) profitable in both the short run and the long run. 
D) more profitable in the short run than in the long run.

Question 4

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

Accepted Answer

A) True 
 B)False

Question 5

If the price elasticity of demand for apples is 0.8, then a 2.4% increase in the price of apples will decrease the quantity demanded of apples by

Accepted Answer

A) 1.92%, and apples sellers' total revenue will increase as a result. 
B) 1.92%, and apples sellers' total revenue will decrease as a result. 
C) 3%, and apples sellers' total revenue will increase as a result. 
D) 3%, and apples sellers' total revenue will decrease as a result. 
A) 1.92%, and apples sellers' total revenue will increase as a result. 
B) 1.92%, and apples sellers' total revenue will decrease as a result. 
C) 3%, and apples sellers' total revenue will increase as a result. 
D) 3%, and apples sellers' total revenue will decrease as a result.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Figure 5-1  
-Refer to Figure 5-1. Between point A and point B on the graph, demand is

Accepted Answer

A) perfectly elastic. 
B) inelastic. 
C) unit elastic. 
D) elastic, but not perfectly elastic. 
A) perfectly elastic. 
B) inelastic. 
C) unit elastic. 
D) elastic, but not perfectly elastic.

Question 8

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

Accepted Answer

perfectly

Question 9

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 10

Scenario 5-6
Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000.
-Refer to Scenario 5-6. Considering the cross price elasticity of demand for mobile and landline telephone service, is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?

Accepted Answer

The cross price elas

Question 11

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

Accepted Answer

A) positive. 
B) negative. 
C) either positive or negative. It depends whether A and B are normal goods or inferior goods. 
D) either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve. 
A) positive. 
B) negative. 
C) either positive or negative. It depends whether A and B are normal goods or inferior goods. 
D) either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve.

Question 12

Figure 5-4  
-Refer to Figure 5-4. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to

Accepted Answer

A) increase. 
B) stay the same. 
C) decrease. 
D) first decrease, then increase until total revenue is maximized. 
A) increase. 
B) stay the same. 
C) decrease. 
D) first decrease, then increase until total revenue is maximized.

Question 13

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Accepted Answer

A) True 
 B)False

Question 14

Table 5-2  
-Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the price elasticity of demand is

Accepted Answer

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

Question 15

For a particular good, an 8 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A) There are no close substitutes for this good. 
B) The good is a necessity. 
C) The market for the good is broadly defined. 
D) The relevant time horizon is long. 
A) There are no close substitutes for this good. 
B) The good is a necessity. 
C) The market for the good is broadly defined. 
D) The relevant time horizon is long.

Question 16

The price elasticity of demand for bread is

Accepted Answer

A) computed as the change in the price of bread divided by the change in the quantity demanded of bread. 
B) independent of the availability of close substitutes. 
C) influenced by whether consumers view bread as a necessity or luxury. 
D) All of the above are correct. 
A) computed as the change in the price of bread divided by the change in the quantity demanded of bread. 
B) independent of the availability of close substitutes. 
C) influenced by whether consumers view bread as a necessity or luxury. 
D) All of the above are correct.

Question 17

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income.  
-Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?

Accepted Answer

A) 0.00 
B) 0.41 
C) 1.00 
D) 2.45 
A) 0.00 
B) 0.41 
C) 1.00 
D) 2.45

Question 18

The cross-price elasticity of demand can tell us whether goods are

Accepted Answer

A) normal or inferior. 
B) elastic or inelastic. 
C) luxuries or necessities. 
D) complements or substitutes. 
A) normal or inferior. 
B) elastic or inelastic. 
C) luxuries or necessities. 
D) complements or substitutes.

Question 19

At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about

Accepted Answer

A) 2.0. 
B) 1.23. 
C) 1.00. 
D) 0.81. 
A) 2.0. 
B) 1.23. 
C) 1.00. 
D) 0.81.

Question 20

Scenario 5-3
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-3. The equilibrium quantity will

Accepted Answer

A) increase in both the aged cheddar cheese and bread markets. 
B) increase in the aged cheddar cheese market and decrease in the bread market. 
C) decrease in the aged cheddar cheese market and increase in the bread market. 
D) decrease in both the aged cheddar cheese and bread markets. 
A) increase in both the aged cheddar cheese and bread markets. 
B) increase in the aged cheddar cheese market and decrease in the bread market. 
C) decrease in the aged cheddar cheese market and increase in the bread market. 
D) decrease in both the aged cheddar cheese and bread markets.

Exam 5: Elasticity and Its Application

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

Suppose a market has the demand function Qd=20-0.5P. At what price will total revenue be maximized?

OPEC has coordinated a reduction in supply that was

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

If the price elasticity of demand for apples is 0.8, then a 2.4% increase in the price of apples will decrease the quantity demanded of apples by

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

Figure 5-1 -Refer to Figure 5-1. Between point A and point B on the graph, demand is

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

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

Figure 5-4 -Refer to Figure 5-4. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Table 5-2 -Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the price elasticity of demand is

For a particular good, an 8 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The price elasticity of demand for bread is

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?

The cross-price elasticity of demand can tell us whether goods are

At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about

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

Filters

Suppose a market has the demand function Q^d=20-0.5P. At what price will total revenue be maximized?