Question 1

Figure 5-10  
-Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)

Accepted Answer

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

Question 2

If the demand for textbooks is inelastic, then a decrease in the price of textbooks will

Accepted Answer

A) increase total revenue of textbook sellers. 
B) decrease total revenue of textbook sellers. 
C) not change total revenue of textbook sellers. 
D) There is not enough information to answer this question. 
A) increase total revenue of textbook sellers. 
B) decrease total revenue of textbook sellers. 
C) not change total revenue of textbook sellers. 
D) There is not enough information to answer this question.

Question 3

Figure 5-15  
-Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points D and G?

Accepted Answer

A) 1.89 
B) 1.26 
C) 0.53 
D) 0.34 
A) 1.89 
B) 1.26 
C) 0.53 
D) 0.34

Question 4

Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about

Accepted Answer

A) 0.32, and Tess regards handbags as inferior goods. 
B) 0.32, and Tess regards handbags as normal goods. 
C) 3.17, and Tess regards handbags as inferior goods. 
D) 3.17, and Tess regards handbags as normal goods. 
A) 0.32, and Tess regards handbags as inferior goods. 
B) 0.32, and Tess regards handbags as normal goods. 
C) 3.17, and Tess regards handbags as inferior goods. 
D) 3.17, and Tess regards handbags as normal goods.

Question 5

Adam and Barb go to the store to purchase some lottery tickets. Without looking at the price, Adam says "I'll take 10 lottery tickets," and Barb says "I'll take $10 worth of lottery tickets." What is each person's price elasticity of demand for lottery tickets?

Accepted Answer

Since Adam wants 10 tickets regardless o

Question 6

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 7

Which of the following statements does not help to explain why government drug interdiction increases drug-related crime?

Accepted Answer

A) The demand for illegal drugs is inelastic. 
B) Interdiction results in drug addicts having a greater need for quick cash. 
C) Interdiction results in an increase in the amount of money needed to buy the same amount of drugs. 
D) Government drug programs are more lenient now with drug offenders than they were in the 1980s. 
A) The demand for illegal drugs is inelastic. 
B) Interdiction results in drug addicts having a greater need for quick cash. 
C) Interdiction results in an increase in the amount of money needed to buy the same amount of drugs. 
D) Government drug programs are more lenient now with drug offenders than they were in the 1980s.

Question 8

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to

Accepted Answer

A) fall by 200 percent. 
B) fall by 40 percent. 
C) rise by 200 percent. 
D) rise by 40 percent. 
A) fall by 200 percent. 
B) fall by 40 percent. 
C) rise by 200 percent. 
D) rise by 40 percent.

Question 9

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

Accepted Answer

A) use more fertilizers and weed killers to increase their yields. 
B) plant additional acres to increase their output. 
C) reduce the number of acres they plant to decrease their output. 
D) Both a and b are correct. 
A) use more fertilizers and weed killers to increase their yields. 
B) plant additional acres to increase their output. 
C) reduce the number of acres they plant to decrease their output. 
D) Both a and b are correct.

Question 10

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 change in equilibrium quantity will be

Accepted Answer

A) greater in the milk market than in the beef market. 
B) greater in the beef market than in the milk market. 
C) the same in the milk and beef markets. 
D) Any of the above could be correct. 
A) greater in the milk market than in the beef market. 
B) greater in the beef market than in the milk market. 
C) the same in the milk and beef markets. 
D) Any of the above could be correct.

Question 11

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni

Accepted Answer

A) and soy-burgers are both normal goods with income elasticities equal to 1. 
B) is an inferior good and soy-burgers are normal goods; both have income elasticities of 1. 
C) is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1. 
D) and soy-burgers are both inferior goods with income elasticities equal to -1. 
A) and soy-burgers are both normal goods with income elasticities equal to 1. 
B) is an inferior good and soy-burgers are normal goods; both have income elasticities of 1. 
C) is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1. 
D) and soy-burgers are both inferior goods with income elasticities equal to -1.

Question 12

A perfectly elastic demand implies that

Accepted Answer

A) buyers will not respond to any change in price. 
B) any rise in price above that represented by the demand curve will result in a quantity demanded of zero. 
C) quantity demanded and price change by the same percent as we move along the demand curve. 
D) price will rise by an infinite amount when there is a change in quantity demanded. 
A) buyers will not respond to any change in price. 
B) any rise in price above that represented by the demand curve will result in a quantity demanded of zero. 
C) quantity demanded and price change by the same percent as we move along the demand curve. 
D) price will rise by an infinite amount when there is a change in quantity demanded.

Question 13

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

Accepted Answer

A) is negative, and Laura's is positive. 
B) is positive, and Laura's is negative. 
C) is zero, and Laura's is positive. 
D) is zero, and Laura's is negative. 
A) is negative, and Laura's is positive. 
B) is positive, and Laura's is negative. 
C) is zero, and Laura's is positive. 
D) is zero, and Laura's is negative.

Question 14

If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

Accepted Answer

A) True 
 B)False

Question 15

Demand is inelastic if the price elasticity of demand is

Accepted Answer

A) less than 1. 
B) equal to 1. 
C) greater than 1. 
D) equal to 0. 
A) less than 1. 
B) equal to 1. 
C) greater than 1. 
D) equal to 0.

Question 16

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1. What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs?

Accepted Answer

A) Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes. 
B) Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements. 
C) Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes. 
D) Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements. 
A) Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes. 
B) Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements. 
C) Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes. 
D) Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements.

Question 17

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is

Accepted Answer

A) -0.71, and X and Y are complements. 
B) -1.40, and X and Y are complements. 
C) -0.71, and X and Y are substitutes. 
D) -1.40, and X and Y are substitutes. 
A) -0.71, and X and Y are complements. 
B) -1.40, and X and Y are complements. 
C) -0.71, and X and Y are substitutes. 
D) -1.40, and X and Y are substitutes.

Question 18

The demand for grape-flavored Hubba Bubba bubble gum is likely

Accepted Answer

A) inelastic because there are many close substitutes for grape-flavored Hubba Bubba . 
B) elastic because there are many close substitutes for grape-flavored Hubba Bubba. 
C) inelastic because the market is broadly defined. 
D) elastic because the market is broadly defined. 
A) inelastic because there are many close substitutes for grape-flavored Hubba Bubba . 
B) elastic because there are many close substitutes for grape-flavored Hubba Bubba. 
C) inelastic because the market is broadly defined. 
D) elastic because the market is broadly defined.

Question 19

The midpoint method is used to compute elasticity because it

Accepted Answer

A) automatically computes a positive number instead of a negative number. 
B) results in an elasticity that is the same as the slope of the demand curve. 
C) gives the same answer regardless of the direction of change. 
D) automatically rounds quantities to the nearest whole unit. 
A) automatically computes a positive number instead of a negative number. 
B) results in an elasticity that is the same as the slope of the demand curve. 
C) gives the same answer regardless of the direction of change. 
D) automatically rounds quantities to the nearest whole unit.

Question 20

Figure 5-4  
-Refer to Figure 5-4. If the price increases 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 increase, then decrease until total revenue is maximized. 
A) increase. 
B) stay the same. 
C) decrease. 
D) first increase, then decrease until total revenue is maximized.

Exam 5: Elasticity and Its Application

Figure 5-10 -Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)

If the demand for textbooks is inelastic, then a decrease in the price of textbooks will

Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points D and G?

Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about

Adam and Barb go to the store to purchase some lottery tickets. Without looking at the price, Adam says "I'll take 10 lottery tickets," and Barb says "I'll take $10 worth of lottery tickets." What is each person's price elasticity of demand for lottery tickets?

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

Which of the following statements does not help to explain why government drug interdiction increases drug-related crime?

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

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 change in equilibrium quantity will be

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni

A perfectly elastic demand implies that

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

Demand is inelastic if the price elasticity of demand is

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is

The demand for grape-flavored Hubba Bubba bubble gum is likely

The midpoint method is used to compute elasticity because it

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

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

Figure 5-10 -Refer to Figure 5-10. Total revenue when the price is P₁ is represented by the area(s)