Question 1

The fundamental determinant of the elasticity of supply is how quickly per-unit costs increase with an increase in production.

Accepted Answer

A) True 
 B)False

Question 2

The demand curve for physician office visits is quite inelastic; therefore, a:

Accepted Answer

A)  large increase in price causes quantity demanded to decrease by very little. 
B)  large decrease in price causes quantity demanded to decrease by a lot. 
C)  small increase in price causes quantity demanded to decrease by a lot. 
D)  small decrease in price causes quantity demanded to decrease by very little. 
A)  large increase in price causes quantity demanded to decrease by very little. 
B)  large decrease in price causes quantity demanded to decrease by a lot. 
C)  small increase in price causes quantity demanded to decrease by a lot. 
D)  small decrease in price causes quantity demanded to decrease by very little.

Question 3

Which one of the following products would tend to have inelastic demand?

Accepted Answer

A)  luxury sedans 
B)  candy 
C)  crude oil 
D)  Black Angus T-bone steak 
A)  luxury sedans 
B)  candy 
C)  crude oil 
D)  Black Angus T-bone steak

Question 4

(Figure: Price Elasticity of Demand) Refer to the figure. Which of the four demand curves has the greatest responsiveness to price changes? Figure: Price Elasticity of Demand

Accepted Answer

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

Question 5

If the cross-price elasticity of demand of two goods is positive, we can conclude that the two goods are:

Accepted Answer

A)  normal goods. 
B)  inferior goods. 
C)  substitutes. 
D)  complements. 
A)  normal goods. 
B)  inferior goods. 
C)  substitutes. 
D)  complements.

Question 6

Accepted Answer

a. @#IMG-DLM& b. The demand for Good A is more ela

Question 7

The price elasticity of demand is:

Accepted Answer

A)  the responsiveness of price to changes in the quantity demanded of the product. 
B)  the responsiveness of quantity demanded to changes in the price of the product. 
C)  the change in the firm's total revenue when prices change. 
D)  exactly the same as the slope of the demand curve. 
A)  the responsiveness of price to changes in the quantity demanded of the product. 
B)  the responsiveness of quantity demanded to changes in the price of the product. 
C)  the change in the firm's total revenue when prices change. 
D)  exactly the same as the slope of the demand curve.

Question 8

If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price.

Accepted Answer

A) True 
 B)False

Question 9

If the price of Good Y falls from $10 to $8, and the quantity supplied of Good Y falls from 1,000 units to 600 units, the price elasticity of supply is:

Accepted Answer

A)  2.67. 
B)  -2.67. 
C)  2.25. 
D)  -2.25. 
A)  2.67. 
B)  -2.67. 
C)  2.25. 
D)  -2.25.

Question 10

Nobel prize-winning economist Gary Becker suggests that a tax could be set so that it raised drug seller costs without prohibition, and in turn would:

Accepted Answer

A)  increase seller revenues. 
B)  decrease seller revenues. 
C)  increase government revenues. 
D)  decrease government revenues. 
A)  increase seller revenues. 
B)  decrease seller revenues. 
C)  increase government revenues. 
D)  decrease government revenues.

Question 11

Tonya consumes 10 boxes of Ramen Noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of Ramen Noodles a year. Calculate her income elasticity of demand for Ramen Noodles.

Accepted Answer

A)  4.2 
B)  -4.2 
C)  -2.25 
D)  2.25 
A)  4.2 
B)  -4.2 
C)  -2.25 
D)  2.25

Question 12

If the price of Good Y falls from $10 to $8, and the quantity demand of Good Y rises from 1,000 units to 1,200 units, the price elasticity of demand is:

Accepted Answer

A)  1.00. 
B)  0.20. 
C)  0.81. 
D)  1.22. 
A)  1.00. 
B)  0.20. 
C)  0.81. 
D)  1.22.

Question 13

Which of the following statements is TRUE? I. The War on Drugs has increased revenues in the illegal drug industry. II. The War Drugs has increased the costs of selling drugs, causing a decrease in the supply of drugs. III. The War on Drugs has caused the price of drugs to increase. IV. The quantity demanded of illicit drugs is elastic.

Accepted Answer

A)  II, III and IV only 
B)  II only 
C)  I, II, and III only 
D)  I, II, III, and IV 
A)  II, III and IV only 
B)  II only 
C)  I, II, and III only 
D)  I, II, III, and IV

Question 14

Assume that the supply curve for a good is constantly fixed at 100 units. Now suppose that the demand curve for the good increases such that the equilibrium price rises from $20 to $30. How does total revenue for the sale of this product change?

Accepted Answer

A)  Total revenue rises by $1,000. 
B)  Total revenue does not change. 
C)  Total revenue rises by $3,000. 
D)  Total revenue rises by $10. 
A)  Total revenue rises by $1,000. 
B)  Total revenue does not change. 
C)  Total revenue rises by $3,000. 
D)  Total revenue rises by $10.

Question 15

If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent:

Accepted Answer

A)  causes the quantity supplied of Good X to rise 20 percent. 
B)  causes the quantity supplied of Good X to fall 20 percent. 
C)  causes the quantity supplied of Good X to rise 1.25 percent. 
D)  causes the quantity supplied of Good X to fall 1.25 percent. 
A)  causes the quantity supplied of Good X to rise 20 percent. 
B)  causes the quantity supplied of Good X to fall 20 percent. 
C)  causes the quantity supplied of Good X to rise 1.25 percent. 
D)  causes the quantity supplied of Good X to fall 1.25 percent.

Question 16

The elasticity of demand for oil is about 0.5, and the elasticity of supply is about 0.3. If ANWR were drilled and the world supply of oil increased by 3 percent, what is the estimated percent change in the world price of oil?

Accepted Answer

A)  -1.25 percent 
B)  -2.50 percent 
C)  -3.75 percent 
D)  Unknown 
A)  -1.25 percent 
B)  -2.50 percent 
C)  -3.75 percent 
D)  Unknown

Question 17

Similar to the elasticity of demand, the elasticity of supply tends to become more elastic in the long run.

Accepted Answer

A) True 
 B)False

Question 18

The demand curve for computer chips is inelastic so revenues for the computer chip industry have increased with a decrease in the price of computer chips.

Accepted Answer

A) True 
 B)False

Question 19

Reference: Ref 5-1 (Figure: Elasticity of Supply) Refer to the figure. Which supply curve is the most elastic?

Accepted Answer

A)  S1 
B)  S2 
C)  S3 
D)  S4 
A)  S1 
B)  S2 
C)  S3 
D)  S4

Question 20

Assume a product has a rather elastic demand curve. If the producer of the good raises the price of the product, that producer's total revenue will always decrease.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Applications

The fundamental determinant of the elasticity of supply is how quickly per-unit costs increase with an increase in production.

The demand curve for physician office visits is quite inelastic; therefore, a:

Which one of the following products would tend to have inelastic demand?

(Figure: Price Elasticity of Demand) Refer to the figure. Which of the four demand curves has the greatest responsiveness to price changes? Figure: Price Elasticity of Demand

If the cross-price elasticity of demand of two goods is positive, we can conclude that the two goods are:

The price elasticity of demand is:

If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price.

If the price of Good Y falls from $10 to $8, and the quantity supplied of Good Y falls from 1,000 units to 600 units, the price elasticity of supply is:

Nobel prize-winning economist Gary Becker suggests that a tax could be set so that it raised drug seller costs without prohibition, and in turn would:

Tonya consumes 10 boxes of Ramen Noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of Ramen Noodles a year. Calculate her income elasticity of demand for Ramen Noodles.

If the price of Good Y falls from $10 to $8, and the quantity demand of Good Y rises from 1,000 units to 1,200 units, the price elasticity of demand is:

Assume that the supply curve for a good is constantly fixed at 100 units. Now suppose that the demand curve for the good increases such that the equilibrium price rises from $20 to $30. How does total revenue for the sale of this product change?

If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent:

The elasticity of demand for oil is about 0.5, and the elasticity of supply is about 0.3. If ANWR were drilled and the world supply of oil increased by 3 percent, what is the estimated percent change in the world price of oil?

Similar to the elasticity of demand, the elasticity of supply tends to become more elastic in the long run.

The demand curve for computer chips is inelastic so revenues for the computer chip industry have increased with a decrease in the price of computer chips.

Reference: Ref 5-1 (Figure: Elasticity of Supply) Refer to the figure. Which supply curve is the most elastic?

Assume a product has a rather elastic demand curve. If the producer of the good raises the price of the product, that producer's total revenue will always decrease.

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

Price Ceilings and Floors

International Trade

Externalities: When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination and Pricing Strategy

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

Gdp and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation, and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Supply and Demand

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

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