Question 1

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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. Using the midpoint method, 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 4

When the price of candy bars is $1.10, the quantity demanded is 340 per day. When the price falls to $0.90, the quantity demanded increases to 350. Given this information and using the midpoint method, we know that the demand for candy bars is

Accepted Answer

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

Question 5

Scenario 5-1
​
Suppose the demand function for good X is given by: QS1U1B1dxS1U1B0 = 15 − 0.5PS1U1B1xS1U1B0 − 0.8PS1U1B1yS1U1B0 where QS1U1B1dxS1U1B0 is the quantity demanded of good X, PS1U1B1xS1U1B0 is the price of good X, and PS1U1B1yS1U1B0 is the price of good Y, which is related to good X.
-Refer to Scenario 5-1. 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

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

Accepted Answer

A) raise both price and total revenues. 
B) lower both price and total revenues. 
C) raise price and lower total revenues. 
D) lower price and raise total revenues. 
A) raise both price and total revenues. 
B) lower both price and total revenues. 
C) raise price and lower total revenues. 
D) lower price and raise total revenues.

Question 7

Table 5-6
Consider the following demand schedule.
 $$\begin{array} { | l | l | } 
\hline \text { Price } & \text { Quantity Demanded } \
\hline \$ 0 & 1,000 \
\hline \$ 3 & 800 \
\hline \$ 6 & 600 \
\hline \$ 9 & 400 \
\hline \$ 12 & 200 \
\hline \$ 15 & 0 \
\hline
\end{array}$$
-Refer to Table 5-6. Using the midpoint method, between which two prices is price elasticity of demand most inelastic?

Accepted Answer

The answer of Table 5-6
Consider the following demand schedule.
 \[\begin{array}...

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Suppose the price elasticity of demand for a product is 1. If a supplier wants to increase revenue, what change should it make to price, if any?

Accepted Answer

No change,

Question 10

Suppose demand is given by the equation:
QD = 50 - 5P
Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Accepted Answer

The price

Question 11

In general, demand curves for necessities tend to be price elastic.

Accepted Answer

A) True 
 B)False

Question 12

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.

Accepted Answer

A) True 
 B)False

Question 13

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...

Question 14

Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded.

Accepted Answer

A) True 
 B)False

Question 15

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

Accepted Answer

A) the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. 
B) both the mayor and the city manager think that demand is elastic. 
C) both the mayor and the city manager think that demand is inelastic. 
D) the mayor thinks demand is inelastic, and the city manager thinks demand is elastic. 
A) the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. 
B) both the mayor and the city manager think that demand is elastic. 
C) both the mayor and the city manager think that demand is inelastic. 
D) the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Question 16

The income 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 17

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 1.45. Which of the following events is consistent with a 20 percent decrease in the quantity of the good demanded?

Accepted Answer

A) An increase of 29.0 percent in the price of the good 
B) An increase of 13.79 percent in the price of the good 
C) An increase in the price of the good from $29.00 to $20 
D) An increase in the price of the good from $20 to $49.00 
A) An increase of 29.0 percent in the price of the good 
B) An increase of 13.79 percent in the price of the good 
C) An increase in the price of the good from $29.00 to $20 
D) An increase in the price of the good from $20 to $49.00

Question 18

Scenario 5-4
​
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. Using the midpoint method, what is the cross price elasticity of demand for landline and mobile service?

Accepted Answer

The answer of Scenario 5-4
​
Consider the markets for mobile and...

Question 19

Goods with many close substitutes tend to have

Accepted Answer

A) more elastic demands. 
B) less elastic demands. 
C) price elasticities of demand that are unit elastic. 
D) income elasticities of demand that are negative. 
A) more elastic demands. 
B) less elastic demands. 
C) price elasticities of demand that are unit elastic. 
D) income elasticities of demand that are negative.

Question 20

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price inelastic demand?

Accepted Answer

The answer of Suppose that good X has few close...

Exam 5: Elasticity and Its Application

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

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

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. Using the midpoint method, we can conclude that for Heather, macaroni

When the price of candy bars is $1.10, the quantity demanded is 340 per day. When the price falls to $0.90, the quantity demanded increases to 350. Given this information and using the midpoint method, we know that the demand for candy bars is

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

Table 5-6 Consider the following demand schedule. Price Quantity Demanded \ 0 1,000 \ 3 800 \ 6 600 \ 9 400 \ 12 200 \ 15 0 -Refer to Table 5-6. Using the midpoint method, between which two prices is price elasticity of demand most inelastic?

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

Suppose the price elasticity of demand for a product is 1. If a supplier wants to increase revenue, what change should it make to price, if any?

Suppose demand is given by the equation: QD = 50 - 5P Using the midpoint method, what is the price elasticity of demand between $1 and $2?

In general, demand curves for necessities tend to be price elastic.

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.

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?

Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded.

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

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

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 1.45. Which of the following events is consistent with a 20 percent decrease in the quantity of the good demanded?

Goods with many close substitutes tend to have

Suppose that good X has few close substitutes and that good Y has many close substitutes. 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

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 Nations 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 demand is given by the equation: Q^D= 50 - 5P Using the midpoint method, what is the price elasticity of demand between $1 and $2?