Question 1

Holding all other forces constant,if decreasing the price of a good leads to a decrease in total revenue,then the demand for the good must be

Accepted Answer

A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct because a price increase always leads to an increase in total revenue. 
A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct because a price increase always leads to an increase in total revenue.

Question 2

When demand is elastic,an increase in price will cause

Accepted Answer

A)  an increase in total revenue. 
B)  a decrease in total revenue. 
C)  no change in total revenue but an increase in quantity demanded. 
D)  no change in total revenue but a decrease in quantity demanded. 
A)  an increase in total revenue. 
B)  a decrease in total revenue. 
C)  no change in total revenue but an increase in quantity demanded. 
D)  no change in total revenue but a decrease in quantity demanded.

Question 3

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

Accepted Answer

A) True 
 B)False

Question 4

Some firms eventually experience problems with their capacity to produce output as their output levels increase.For these firms,

Accepted Answer

A)  market power is substantial. 
B)  supply is perfectly inelastic. 
C)  supply is more elastic at low levels of output and less elastic at high levels of output. 
D)  supply is less elastic at low levels of output and more elastic at high levels of output. 
A)  market power is substantial. 
B)  supply is perfectly inelastic. 
C)  supply is more elastic at low levels of output and less elastic at high levels of output. 
D)  supply is less elastic at low levels of output and more elastic at high levels of output.

Question 5

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

Accepted Answer

A) True 
 B)False

Question 6

If a 10% decrease in price for a good results in a 20% increase in quantity demanded,the price elasticity of demand is

Accepted Answer

A)  0.50. 
B)  1. 
C)  1.5. 
D)  2. 
A)  0.50. 
B)  1. 
C)  1.5. 
D)  2.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Figure 5-14
  
-Refer to Figure 5-14.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 9

Income elasticity of demand measures how

Accepted Answer

A)  the quantity demanded changes as consumer income changes. 
B)  consumer purchasing power is affected by a change in the price of a good. 
C)  the price of a good is affected when there is a change in consumer income. 
D)  many units of a good a consumer can buy given a certain income level. 
A)  the quantity demanded changes as consumer income changes. 
B)  consumer purchasing power is affected by a change in the price of a good. 
C)  the price of a good is affected when there is a change in consumer income. 
D)  many units of a good a consumer can buy given a certain income level.

Question 10

When studying how some event or policy affects a market,elasticity provides information on the

Accepted Answer

A)  government expenditures associated with the policy. 
B)  costs and benefits of the effect. 
C)  allocative efficiency of the effect. 
D)  direction and magnitude of the effect. 
A)  government expenditures associated with the policy. 
B)  costs and benefits of the effect. 
C)  allocative efficiency of the effect. 
D)  direction and magnitude of the effect.

Question 11

Suppose the price of potato chips decreases from $1.45 to $1.25 and,as a result,the quantity of potato chips demanded increases from 2,000 to 2,200.Using the midpoint method,the price elasticity of demand for potato chips in the given price range is

Accepted Answer

A)  2.00. 
B)  1.55. 
C)  1.00. 
D)  0.64. 
A)  2.00. 
B)  1.55. 
C)  1.00. 
D)  0.64.

Question 12

Suppose good X has a positive income elasticity of demand.This implies that good X could be
(i)a normal good.
(ii)a necessity.
(iii)an inferior good.
(iv)a luxury.

Accepted Answer

A)  (i) only 
B)  (i) and (ii) only 
C)  (i), (ii), and (iv) only 
D)  (iii) only 
A)  (i) only 
B)  (i) and (ii) only 
C)  (i), (ii), and (iv) only 
D)  (iii) only

Question 13

If a 25% change in price results in a 40% change in quantity supplied,then the price elasticity of supply is about

Accepted Answer

A)  0.63, and supply is elastic. 
B)  0.63, and supply is inelastic. 
C)  1.60, and supply is elastic. 
D)  1.60, and supply is inelastic. 
A)  0.63, and supply is elastic. 
B)  0.63, and supply is inelastic. 
C)  1.60, and supply is elastic. 
D)  1.60, and supply is inelastic.

Question 14

When demand is perfectly inelastic,the demand curve will be

Accepted Answer

A)  negatively sloped, because buyers decrease their purchases when the price rises. 
B)  vertical, because buyers purchase the same amount as before whenever the price rises or falls. 
C)  positively sloped, because buyers increase their purchases when price rises. 
D)  positively sloped, because buyers increase their total expenditures when price rises. 
A)  negatively sloped, because buyers decrease their purchases when the price rises. 
B)  vertical, because buyers purchase the same amount as before whenever the price rises or falls. 
C)  positively sloped, because buyers increase their purchases when price rises. 
D)  positively sloped, because buyers increase their total expenditures when price rises.

Question 15

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 16

Suppose that Juan Carlos is filling out a survey that he received in the mail.The survey asks him what he would do if the price of his favorite toothpaste increased.Juan Carlos reports that he would switch to a different brand.The survey asks what he would do if the price of all toothpastes increased.Juan Carlos reports that he must use toothpaste,so he would have to adjust his spending elsewhere.These examples illustrate the importance of

Accepted Answer

A)  changes in total revenue in determining the price elasticity of demand. 
B)  a necessity versus a luxury in determining the price elasticity of demand. 
C)  the definition of a market in determining the price elasticity of demand. 
D)  the time horizon in determining the price elasticity of demand. 
A)  changes in total revenue in determining the price elasticity of demand. 
B)  a necessity versus a luxury in determining the price elasticity of demand. 
C)  the definition of a market in determining the price elasticity of demand. 
D)  the time horizon in determining the price elasticity of demand.

Question 17

If the price elasticity of demand for a good is 6,then a 3 percent decrease in price results in

Accepted Answer

A)  a 20 percent increase in the quantity demanded. 
B)  an 18 percent increase in the quantity demanded. 
C)  a 2 percent increase in the quantity demanded. 
D)  a 1.8 percent increase in the quantity demanded. 
A)  a 20 percent increase in the quantity demanded. 
B)  an 18 percent increase in the quantity demanded. 
C)  a 2 percent increase in the quantity demanded. 
D)  a 1.8 percent increase in the quantity demanded.

Question 18

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Accepted Answer

A)  inelastic. 
B)  unit elastic. 
C)  elastic. 
D)  highly responsive to changes in income. 
A)  inelastic. 
B)  unit elastic. 
C)  elastic. 
D)  highly responsive to changes in income.

Question 19

Generally,a firm is more willing and able to increase quantity supplied in response to a price change when

Accepted Answer

A)  the relevant time period is short rather than long. 
B)  the relevant time period is long rather than short. 
C)  supply is inelastic. 
D)  the firm is experiencing capacity problems. 
A)  the relevant time period is short rather than long. 
B)  the relevant time period is long rather than short. 
C)  supply is inelastic. 
D)  the firm is experiencing capacity problems.

Question 20

Which of the following statements is not valid when supply is perfectly elastic?

Accepted Answer

A)  The elasticity of supply approaches infinity. 
B)  The supply curve is horizontal. 
C)  Very small changes in price lead to very large changes in quantity supplied. 
D)  The time period under consideration is more likely a short period rather than a long period. 
A)  The elasticity of supply approaches infinity. 
B)  The supply curve is horizontal. 
C)  Very small changes in price lead to very large changes in quantity supplied. 
D)  The time period under consideration is more likely a short period rather than a long period.

Exam 5: Elasticity and Its Application

Holding all other forces constant,if decreasing the price of a good leads to a decrease in total revenue,then the demand for the good must be

When demand is elastic,an increase in price will cause

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

Some firms eventually experience problems with their capacity to produce output as their output levels increase.For these firms,

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

If a 10% decrease in price for a good results in a 20% increase in quantity demanded,the price elasticity of demand is

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

Figure 5-14 -Refer to Figure 5-14.Using the midpoint method,what is the price elasticity of supply between points D and G?

Income elasticity of demand measures how

When studying how some event or policy affects a market,elasticity provides information on the

Suppose the price of potato chips decreases from $1.45 to $1.25 and,as a result,the quantity of potato chips demanded increases from 2,000 to 2,200.Using the midpoint method,the price elasticity of demand for potato chips in the given price range is

Suppose good X has a positive income elasticity of demand.This implies that good X could be (i)a normal good. (ii)a necessity. (iii)an inferior good. (iv)a luxury.

If a 25% change in price results in a 40% change in quantity supplied,then the price elasticity of supply is about

When demand is perfectly inelastic,the demand curve will be

The midpoint method is used to compute elasticity because it

If the price elasticity of demand for a good is 6,then a 3 percent decrease in price results in

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Generally,a firm is more willing and able to increase quantity supplied in response to a price change when

Which of the following statements is not valid when supply is perfectly elastic?

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.

Application: 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 Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

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