Question 1

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

Accepted Answer

A) True 
 B)False

Question 2

You own a small town movie theatre.You currently charge $5 per ticket for everyone who comes to your movies.Your friend who took an economics course in college tells you that there may be a way to increase your total revenue.Given the demand curves shown,answer the following questions.
   
a.What is your current total revenue for both groups?
b.The elasticity of demand is more elastic in which market?
c.Which market has the more inelastic demand?
d.What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic?
e.What is the elasticity of demand between $5 and $3 in the children's market? Is this elastic or inelastic?
f.Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3.How much could you increase total revenue if you take his advice?

Accepted Answer

a. Total revenue from children's tickets

Question 3

When a technological advance in wheat production is developed and applied to wheat farming,which of the following consequences is most likely?

Accepted Answer

A) The price of wheat decreases by 6 percent and the quantity of wheat sold increases by 10 percent. 
B) The price of wheat decreases by 10 percent and the quantity of wheat sold increases by 6 percent. 
C) Wheat farmers' total revenue increases. 
D) All of the above are equally likely. 
A) The price of wheat decreases by 6 percent and the quantity of wheat sold increases by 10 percent. 
B) The price of wheat decreases by 10 percent and the quantity of wheat sold increases by 6 percent. 
C) Wheat farmers' total revenue increases. 
D) All of the above are equally likely.

Question 4

Which of the following was not a reason OPEC failed to keep the price of oil high?

Accepted Answer

A) Over the long run, producers of oil outside of OPEC responded to higher prices by increasing oil exploration and by building new extraction capacity. 
B) Consumers responded to higher prices with greater conservation. 
C) Consumers replaced old inefficient cars with newer efficient ones. 
D) The agreement OPEC members signed allowed each country to produce as much oil as each wanted. 
A) Over the long run, producers of oil outside of OPEC responded to higher prices by increasing oil exploration and by building new extraction capacity. 
B) Consumers responded to higher prices with greater conservation. 
C) Consumers replaced old inefficient cars with newer efficient ones. 
D) The agreement OPEC members signed allowed each country to produce as much oil as each wanted.

Question 5

Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9.The price elasticity of demand for Harry's Haircuts is

Accepted Answer

A) 0.567. 
B) 0.700. 
C) 1.429. 
D) 2.200. 
A) 0.567. 
B) 0.700. 
C) 1.429. 
D) 2.200.

Question 6

Demand is said to be inelastic if the

Accepted Answer

A) quantity demanded changes proportionately more than price. 
B) price changes proportionately more than income. 
C) quantity demanded changes proportionately less than price. 
D) quantity demanded changes proportionately the same as price. 
A) quantity demanded changes proportionately more than price. 
B) price changes proportionately more than income. 
C) quantity demanded changes proportionately less than price. 
D) quantity demanded changes proportionately the same as price.

Question 7

In which of the following situations will total revenue increase?

Accepted Answer

A) Price elasticity of demand is 1.2 and the price of the good decreases. 
B) Price elasticity of demand is 0.5 and the price of the good increases. 
C) Price elasticity of demand is 3.0 and the price of the good decreases. 
D) All of the above are correct. 
A) Price elasticity of demand is 1.2 and the price of the good decreases. 
B) Price elasticity of demand is 0.5 and the price of the good increases. 
C) Price elasticity of demand is 3.0 and the price of the good decreases. 
D) All of the above are correct.

Question 8

If two supply curves pass through the same point and one is steep and the other is flat,which of the following statements is correct?

Accepted Answer

A) The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. 
B) The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. 
C) Given two prices with which to calculate the price elasticity of supply, that elasticity is the same for both curves. 
D) A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant. 
A) The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. 
B) The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. 
C) Given two prices with which to calculate the price elasticity of supply, that elasticity is the same for both curves. 
D) A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant.

Question 9

Which of the following should be held constant when calculating an income elasticity of demand?

Accepted Answer

A) the price of the good 
B) prices of related goods 
C) tastes 
D) All of the above should be held constant. 
A) the price of the good 
B) prices of related goods 
C) tastes 
D) All of the above should be held constant.

Question 10

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 respond by increasing the market quantity demanded of the good when price rises. 
D) positively sloped, because buyers respond by increasing their total expenditure on the good 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 respond by increasing the market quantity demanded of the good when price rises. 
D) positively sloped, because buyers respond by increasing their total expenditure on the good when price rises.

Question 11

For a good that is a necessity,

Accepted Answer

A) quantity demanded tends to respond substantially to a change in price. 
B) demand tends to be inelastic. 
C) the law of demand often does not apply. 
D) All of the above are correct. 
A) quantity demanded tends to respond substantially to a change in price. 
B) demand tends to be inelastic. 
C) the law of demand often does not apply. 
D) All of the above are correct.

Question 12

If the price elasticity of demand for tuna is 0.7,then a 1.5% increase in the price of tuna will decrease the quantity demanded of tuna by

Accepted Answer

A) 1.05% and tuna sellers' total revenue will increase as a result. 
B) 1.05% and tuna sellers' total revenue will decrease as a result. 
C) 2.14% and tuna sellers' total revenue will increase as a result. 
D) 2.14% and tuna sellers' total revenue will decrease as a result. 
A) 1.05% and tuna sellers' total revenue will increase as a result. 
B) 1.05% and tuna sellers' total revenue will decrease as a result. 
C) 2.14% and tuna sellers' total revenue will increase as a result. 
D) 2.14% and tuna sellers' total revenue will decrease as a result.

Question 13

The case of perfectly elastic demand is illustrated by a demand curve that is

Accepted Answer

A) vertical. 
B) horizontal. 
C) downward-sloping but relatively steep. 
D) downward-sloping but relatively flat. 
A) vertical. 
B) horizontal. 
C) downward-sloping but relatively steep. 
D) downward-sloping but relatively flat.

Question 14

Figure 5-10
  
-Refer to Figure 5-10.The price elasticity of supply between point A and point B,using the midpoint method,is approximately

Accepted Answer

A) 0.58. 
B) 0.71. 
C) 1.06. 
D) 1.4. 
A) 0.58. 
B) 0.71. 
C) 1.06. 
D) 1.4.

Question 15

The flatter the demand curve that passes through a given point,the more inelastic the demand.

Accepted Answer

A) True 
 B)False

Question 16

Figure 5-6
  
-Refer to Figure 5-6.Suppose this demand curve is a straight,downward-sloping line all the way from the horizontal intercept to the vertical intercept.We choose two prices,P₁ and P₂,and the corresponding quantities demanded,Q₁ and Q₂,for the purpose of calculating the price elasticity of demand.Also suppose P₂ > P₁.In which of the following cases could we possibly find that (i)demand is elastic and (ii)an increase in price from P₁ to P₂ causes an increase in total revenue?

Accepted Answer

A) 0  $15. 
D) None of the above is correct. 
A) 0  $15. 
D) None of the above is correct.

Question 17

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Accepted Answer

A) all inferior goods 
B) all normal goods 
C) goods for which there are many good complements 
D) luxuries 
A) all inferior goods 
B) all normal goods 
C) goods for which there are many good complements 
D) luxuries

Question 18

When small changes in price lead to infinite changes in quantity demanded,demand is perfectly

Accepted Answer

A) elastic and the demand curve will be horizontal. 
B) inelastic and the demand curve will be horizontal. 
C) elastic and the demand curve will be vertical. 
D) inelastic and the demand curve will be vertical. 
A) elastic and the demand curve will be horizontal. 
B) inelastic and the demand curve will be horizontal. 
C) elastic and the demand curve will be vertical. 
D) inelastic and the demand curve will be vertical.

Question 19

Figure 5-12
  
-Refer to Figure 5-12.Using the midpoint method,what is the price elasticity of supply between points B and C?

Accepted Answer

A) 1.67 
B) 1.19 
C) 0.84 
D) 0.61 
A) 1.67 
B) 1.19 
C) 0.84 
D) 0.61

Question 20

For which of the following goods is demand probably most inelastic?

Accepted Answer

A) camcorders 
B) insulin 
C) apples 
D) devices that remove cores from apples 
A) camcorders 
B) insulin 
C) apples 
D) devices that remove cores from apples

Exam 5: Elasticity and Its Applications

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

When a technological advance in wheat production is developed and applied to wheat farming,which of the following consequences is most likely?

Which of the following was not a reason OPEC failed to keep the price of oil high?

Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9.The price elasticity of demand for Harry's Haircuts is

Demand is said to be inelastic if the

In which of the following situations will total revenue increase?

If two supply curves pass through the same point and one is steep and the other is flat,which of the following statements is correct?

Which of the following should be held constant when calculating an income elasticity of demand?

When demand is perfectly inelastic,the demand curve will be

For a good that is a necessity,

If the price elasticity of demand for tuna is 0.7,then a 1.5% increase in the price of tuna will decrease the quantity demanded of tuna by

The case of perfectly elastic demand is illustrated by a demand curve that is

Figure 5-10 -Refer to Figure 5-10.The price elasticity of supply between point A and point B,using the midpoint method,is approximately

The flatter the demand curve that passes through a given point,the more inelastic the demand.

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

When small changes in price lead to infinite changes in quantity demanded,demand is perfectly

Figure 5-12 -Refer to Figure 5-12.Using the midpoint method,what is the price elasticity of supply between points B and C?

For which of the following goods is demand probably most inelastic?

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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