Question 1

The elasticity of demand for cigarettes is more inelastic in the long run than in the short run because it takes a long time for some people to quit smoking.

Accepted Answer

A) True 
 B)False

Question 2

If the price of cocoa rises by 20 percent, the quantity supplied of cocoa rises by 4 percent. What is the elasticity of supply?

Accepted Answer

A)  5 
B)  2 
C)  0.2 
D)  0.008 
A)  5 
B)  2 
C)  0.2 
D)  0.008

Question 3

Economic theory suggests that permanent gun buyback programs:

Accepted Answer

A)  succeed in reducing the number of guns in circulation. 
B)  make guns less valuable. 
C)  increase the quantity of low quality guns in circulation but decrease the quantity of high quality guns in circulation. 
D)  increase the number of guns in circulation. 
A)  succeed in reducing the number of guns in circulation. 
B)  make guns less valuable. 
C)  increase the quantity of low quality guns in circulation but decrease the quantity of high quality guns in circulation. 
D)  increase the number of guns in circulation.

Question 4

The supply curve for manufactured goods is usually more elastic because production can often be:

Accepted Answer

A)  increased at higher cost per unit by building more factories. 
B)  increased at lower cost per unit by building more factories. 
C)  decreased at the same cost per unit by building more factories. 
D)  increased at the same cost per unit by building more factories. 
A)  increased at higher cost per unit by building more factories. 
B)  increased at lower cost per unit by building more factories. 
C)  decreased at the same cost per unit by building more factories. 
D)  increased at the same cost per unit by building more factories.

Question 5

The case for drilling oil in ANWR is strengthened when the:

Accepted Answer

A)  price of oil is lower. 
B)  negative impact of drilling on the environment is greater. 
C)  price of oil is higher. 
D)  elasticity of demand for oil increases. 
A)  price of oil is lower. 
B)  negative impact of drilling on the environment is greater. 
C)  price of oil is higher. 
D)  elasticity of demand for oil increases.

Question 6

The demand curve is inelastic if the absolute value of the elasticity is:

Accepted Answer

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

Question 7

If the demand curve is elastic a price ________ causes a(n) ________ in revenues.

Accepted Answer

A)  decrease; decrease 
B)  increase; increase 
C)  decrease; increase 
D)  There is not enough information to answer. 
A)  decrease; decrease 
B)  increase; increase 
C)  decrease; increase 
D)  There is not enough information to answer.

Question 8

If the elasticity of supply is 2.0, what happens to quantity supplied following a 7 percent increase in price? Quantity supplied increases:

Accepted Answer

A)  3.5 percent. 
B)  2.9 percent. 
C)  14 percent. 
D)  9 percent. 
A)  3.5 percent. 
B)  2.9 percent. 
C)  14 percent. 
D)  9 percent.

Question 9

Reference: Ref 5-5 (Figure: Calculating Elasticities) Refer to the figure. The elasticity of demand in the left panel is ________ the elasticity of demand in the right panel.

Accepted Answer

A)  greater than 
B)  less than 
C)  equal to 
D)  a long-run version of 
A)  greater than 
B)  less than 
C)  equal to 
D)  a long-run version of

Question 10

If the price elasticity of demand for Good X is 1 in absolute value, which of the following is TRUE? I. When the price of the good changes, the total revenue for the product does not change. II. A percentage drop in price will lead to an equal percentage increase in quantity demanded. III. When the price of the product rises, total revenue also increases.

Accepted Answer

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

Question 11

If the supply of a product is inelastic, a large price increase will:

Accepted Answer

A)  not have an effect on the quantity supplied. 
B)  only bring about a small increase in quantity supplied. 
C)  cause the supply curve to increase by a nontrivial amount. 
D)  cause a modest decrease in supply. 
A)  not have an effect on the quantity supplied. 
B)  only bring about a small increase in quantity supplied. 
C)  cause the supply curve to increase by a nontrivial amount. 
D)  cause a modest decrease in supply.

Question 12

The elasticity of demand:

Accepted Answer

A)  equals the inverse of price to quantity demanded. 
B)  measures how far the demand curve shifts from a change in price. 
C)  tells us how responsive consumer purchases are to price changes. 
D)  estimates the relationship between quantity demand and production costs. 
A)  equals the inverse of price to quantity demanded. 
B)  measures how far the demand curve shifts from a change in price. 
C)  tells us how responsive consumer purchases are to price changes. 
D)  estimates the relationship between quantity demand and production costs.

Question 13

Demand for necessities is inelastic, while demand for luxuries is elastic.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Applications

The elasticity of demand for cigarettes is more inelastic in the long run than in the short run because it takes a long time for some people to quit smoking.

If the price of cocoa rises by 20 percent, the quantity supplied of cocoa rises by 4 percent. What is the elasticity of supply?

Economic theory suggests that permanent gun buyback programs:

The supply curve for manufactured goods is usually more elastic because production can often be:

The case for drilling oil in ANWR is strengthened when the:

The demand curve is inelastic if the absolute value of the elasticity is:

If the demand curve is elastic a price ________ causes a(n) ________ in revenues.

If the elasticity of supply is 2.0, what happens to quantity supplied following a 7 percent increase in price? Quantity supplied increases:

Reference: Ref 5-5 (Figure: Calculating Elasticities) Refer to the figure. The elasticity of demand in the left panel is ________ the elasticity of demand in the right panel.

If the supply of a product is inelastic, a large price increase will:

The elasticity of demand:

Demand for necessities is inelastic, while demand for luxuries is elastic.

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

Filters

If the demand curve is elastic a price causes a(n) in revenues.