Question 1

If firms do not increase their quantity supplied when price changes, then supply is

Accepted Answer

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

Question 2

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

Accepted Answer

A) rise because there will be a shortage of barley. 
B) rise because the percentage decrease in quantity sold is less than the percentage increase in price. 
C) rise because the percentage increase in quantity sold is greater than the percentage increase in price. 
D) fall because of the decrease in the quantity of barley sold. 
A) rise because there will be a shortage of barley. 
B) rise because the percentage decrease in quantity sold is less than the percentage increase in price. 
C) rise because the percentage increase in quantity sold is greater than the percentage increase in price. 
D) fall because of the decrease in the quantity of barley sold.

Question 3

During an economic expansion as consumer incomes rise, holding everything else constant,

Accepted Answer

A) the demand for most goods, except luxuries, will rise. 
B) the demand for luxuries will rise while the demand for inferior goods will fall. 
C) the demand for luxuries and inferior goods will rise. 
D) the prices of luxuries will fall while the prices of inferior goods will rise. 
A) the demand for most goods, except luxuries, will rise. 
B) the demand for luxuries will rise while the demand for inferior goods will fall. 
C) the demand for luxuries and inferior goods will rise. 
D) the prices of luxuries will fall while the prices of inferior goods will rise.

Question 4

Holding everything else constant, the demand for a good tends to be more elastic

Accepted Answer

A) the more substitutes there are for the good. 
B) the shorter the time period involved. 
C) the more consumers perceive the good to be a necessity. 
D) the less important the product is in consumers' budgets. 
A) the more substitutes there are for the good. 
B) the shorter the time period involved. 
C) the more consumers perceive the good to be a necessity. 
D) the less important the product is in consumers' budgets.

Question 5

The price elasticity of supply is equal to

Accepted Answer

A) the value of the slope of the supply curve. 
B) the change in quantity supplied divided by the change in price. 
C) the percentage change in price divided by the percentage change in quantity supplied. 
D) the percentage change in quantity supplied divided by the percentage change in price. 
A) the value of the slope of the supply curve. 
B) the change in quantity supplied divided by the change in price. 
C) the percentage change in price divided by the percentage change in quantity supplied. 
D) the percentage change in quantity supplied divided by the percentage change in price.

Question 6

Figure 6-12
  
-Refer to Figure 6-12.The diagram shows two supply curves, SA and SB.As price rises from P₀ to P₁, which supply curve is more elastic?

Accepted Answer

A) SA 
B) SB 
C) They are equally inelastic. 
D) They are equally elastic. 
A) SA 
B) SB 
C) They are equally inelastic. 
D) They are equally elastic.

Question 7

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

Accepted Answer

A) It is not true. Revenue will increase as the price of the product increases only if demand is elastic. 
B) This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic. 
C) The statement is true. 
D) This statement is not true. Revenue will decrease as the price of the product increases because quantity demanded will fall. 
A) It is not true. Revenue will increase as the price of the product increases only if demand is elastic. 
B) This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic. 
C) The statement is true. 
D) This statement is not true. Revenue will decrease as the price of the product increases because quantity demanded will fall.

Question 8

Figure 6-11
  
-Refer to Figure 6-11.What is the value of the price elasticity of supply between g and h?

Accepted Answer

A) 20 percent 
B) 0.5 
C) 2 
D) 0.02 
A) 20 percent 
B) 0.5 
C) 2 
D) 0.02

Question 9

Ali's Gyros operates near a college campus.Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut.He estimates that he would be able to sell 200 gyros per day at $3.50 each.
a.Calculate the price elasticity of demand using the midpoint formula.
b.Calculate the change in revenue as a result of the price cut.

Accepted Answer

a.Price elasticity of demand =

Question 10

A perfectly elastic demand curve is

Accepted Answer

A) vertical. 
B) horizontal. 
C) curvilinear. 
D) upward sloping. 
A) vertical. 
B) horizontal. 
C) curvilinear. 
D) upward sloping.

Question 11

A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:
"As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year....And ice cream consumption is down 3 percent."
Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001.
Based on the information given, what is the price elasticity of demand for ice cream?

Accepted Answer

A) 0.75 (in absolute value) 
B) 1.33 (in absolute value) 
C) 12% 
D) We do not have enough information to calculate the elasticity. 
A) 0.75 (in absolute value) 
B) 1.33 (in absolute value) 
C) 12% 
D) We do not have enough information to calculate the elasticity.

Question 12

Demand for a luxury item, such as a yacht, is likely to be

Accepted Answer

A) both income inelastic and price inelastic. 
B) both income elastic and price elastic. 
C) income elastic and price inelastic. 
D) income inelastic and price elastic. 
A) both income inelastic and price inelastic. 
B) both income elastic and price elastic. 
C) income elastic and price inelastic. 
D) income inelastic and price elastic.

Question 13

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

Accepted Answer

A) -0.66 
B) 0.5 
C) 1.5 
D) 2 
A) -0.66 
B) 0.5 
C) 1.5 
D) 2

Question 14

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that

Accepted Answer

A) the two brands are probably made by the same company. 
B) the two brands of detergent are close substitutes. 
C) consumers have a distinct preference for one brand versus the other. 
D) detergents are necessities. 
A) the two brands are probably made by the same company. 
B) the two brands of detergent are close substitutes. 
C) consumers have a distinct preference for one brand versus the other. 
D) detergents are necessities.

Question 15

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues.Which of the following best explains this?

Accepted Answer

A) The decrease in supply led to huge price increases. 
B) Tomatoes are necessities. 
C) The demand for tomatoes is price inelastic. 
D) The cross-price elasticity between tomatoes and most other substitute vegetables is very low. 
A) The decrease in supply led to huge price increases. 
B) Tomatoes are necessities. 
C) The demand for tomatoes is price inelastic. 
D) The cross-price elasticity between tomatoes and most other substitute vegetables is very low.

Question 16

Table 6-5
  
-Refer to Table 6-5.Katie Graham owns a kayak rental service in Santa Barbara.Table 6.5 shows her estimated demand schedule for kayak rentals per week.She would like to increase her sales revenue by changing the price she charges for rentals.At present she charges $75.Based on the information in the table, Katie

Accepted Answer

A) is not able to increase her revenue by changing her price because the demand for kayak rentals is unit elastic. 
B) should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic. 
C) should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic. 
D) should raise her price to earn the most revenue. 
A) is not able to increase her revenue by changing her price because the demand for kayak rentals is unit elastic. 
B) should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic. 
C) should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic. 
D) should raise her price to earn the most revenue.

Question 17

Table 6-6
  
-Refer to Table 6-6.Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

Accepted Answer

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

Question 18

If a soda tax is implemented and demand for soda is price elastic, the effect on discouraging soda consumption would be ________ and ________ tax revenue would be collected than if demand were inelastic.

Accepted Answer

A) larger; more 
B) larger; less 
C) smaller; more 
D) smaller; less 
A) larger; more 
B) larger; less 
C) smaller; more 
D) smaller; less

Question 19

Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03.This means that

Accepted Answer

A) beer and wine are substitutes and wine is an inferior good. 
B) beer and wine are complements and wine is a luxury good. 
C) beer and wine are substitutes and wine is a luxury good. 
D) beer and wine are complements and wine is an inferior good. 
A) beer and wine are substitutes and wine is an inferior good. 
B) beer and wine are complements and wine is a luxury good. 
C) beer and wine are substitutes and wine is a luxury good. 
D) beer and wine are complements and wine is an inferior good.

Question 20

Figure 6-9
  
-Refer to Figure 6-9.The data in the diagram indicates that DVDs are

Accepted Answer

A) luxury goods. 
B) inelastic goods. 
C) necessities. 
D) both luxury goods and inelastic goods. 
E) both necessities and inelastic goods. 
A) luxury goods. 
B) inelastic goods. 
C) necessities. 
D) both luxury goods and inelastic goods. 
E) both necessities and inelastic goods.

If firms do not increase their quantity supplied when price changes, then supply is

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

During an economic expansion as consumer incomes rise, holding everything else constant,

Holding everything else constant, the demand for a good tends to be more elastic

The price elasticity of supply is equal to

Figure 6-12 -Refer to Figure 6-12.The diagram shows two supply curves, S_A and S_B.As price rises from P₀ to P₁, which supply curve is more elastic?

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

Figure 6-11 -Refer to Figure 6-11.What is the value of the price elasticity of supply between g and h?

A perfectly elastic demand curve is

Demand for a luxury item, such as a yacht, is likely to be

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues.Which of the following best explains this?

Table 6-6 -Refer to Table 6-6.Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

If a soda tax is implemented and demand for soda is price elastic, the effect on discouraging soda consumption would be and tax revenue would be collected than if demand were inelastic.

Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03.This means that

Figure 6-9 -Refer to Figure 6-9.The data in the diagram indicates that DVDs are

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters

Exam 6: Elasticity: the Responsiveness of Demand and Supply

If firms do not increase their quantity supplied when price changes, then supply is

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

During an economic expansion as consumer incomes rise, holding everything else constant,

Holding everything else constant, the demand for a good tends to be more elastic

The price elasticity of supply is equal to

Figure 6-12 -Refer to Figure 6-12.The diagram shows two supply curves, SA and SB.As price rises from P₀ to P₁, which supply curve is more elastic?

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

Figure 6-11 -Refer to Figure 6-11.What is the value of the price elasticity of supply between g and h?

A perfectly elastic demand curve is

Demand for a luxury item, such as a yacht, is likely to be

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues.Which of the following best explains this?

Table 6-6 -Refer to Table 6-6.Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

If a soda tax is implemented and demand for soda is price elastic, the effect on discouraging soda consumption would be ________ and ________ tax revenue would be collected than if demand were inelastic.

Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03.This means that

Figure 6-9 -Refer to Figure 6-9.The data in the diagram indicates that DVDs are

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters

Figure 6-12 -Refer to Figure 6-12.The diagram shows two supply curves, S_A and S_B.As price rises from P₀ to P₁, which supply curve is more elastic?

If a soda tax is implemented and demand for soda is price elastic, the effect on discouraging soda consumption would be and tax revenue would be collected than if demand were inelastic.