Question 1

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

Accepted Answer

A) 0.2 
B) 1 
C) 1.5 
D) All of the above could be correct. 
A) 0.2 
B) 1 
C) 1.5 
D) All of the above could be correct.

Question 2

Suppose good X has a negative income elasticity of demand. This implies that good X is

Accepted Answer

A) a normal good. 
B) a necessity. 
C) an inferior good. 
D) a luxury. 
A) a normal good. 
B) a necessity. 
C) an inferior good. 
D) a luxury.

Question 3

The price elasticity of supply measures how responsive

Accepted Answer

A) sellers are to a change in price. 
B) sellers are to a change in buyers' income. 
C) buyers are to a change in production costs. 
D) equilibrium price is to a change in supply. 
A) sellers are to a change in price. 
B) sellers are to a change in buyers' income. 
C) buyers are to a change in production costs. 
D) equilibrium price is to a change in supply.

Question 4

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

Accepted Answer

The appropriate elasticity to compute wo

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Accepted Answer

A) Leave the price at 25 cents and be patient. 
B) Raise the price to increase total revenue. 
C) Lower the price to increase total revenue. 
D) There isn't enough information given to answer this question. 
A) Leave the price at 25 cents and be patient. 
B) Raise the price to increase total revenue. 
C) Lower the price to increase total revenue. 
D) There isn't enough information given to answer this question.

Question 7

Which of the following is not possible?

Accepted Answer

A) Demand is elastic, and a decrease in price causes an increase in revenue. 
B) Demand is unit elastic, and a decrease in price causes an increase in revenue. 
C) Demand is inelastic, and an increase in price causes an increase in revenue. 
D) Demand is perfectly inelastic, and an increase in price causes an increase in revenue. 
A) Demand is elastic, and a decrease in price causes an increase in revenue. 
B) Demand is unit elastic, and a decrease in price causes an increase in revenue. 
C) Demand is inelastic, and an increase in price causes an increase in revenue. 
D) Demand is perfectly inelastic, and an increase in price causes an increase in revenue.

Question 8

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct?

Accepted Answer

A) Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. 
B) Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. 
C) Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth. 
D) Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation Methbust would reduce the equilibrium quantity, whereas Say No would increase the equilibrium quantity of meth. 
A) Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. 
B) Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. 
C) Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth. 
D) Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation Methbust would reduce the equilibrium quantity, whereas Say No would increase the equilibrium quantity of meth.

Question 9

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

Accepted Answer

A) 30%. 
B) 40%. 
C) 80%. 
D) 250%. 
A) 30%. 
B) 40%. 
C) 80%. 
D) 250%.

Question 10

For which of the following goods is the income elasticity of demand likely lowest?

Accepted Answer

A) subscriptions to premium movie channels through the local cable television provider 
B) hi-definition DVD players 
C) champagne 
D) housing 
A) subscriptions to premium movie channels through the local cable television provider 
B) hi-definition DVD players 
C) champagne 
D) housing

Question 11

Figure 5-4  
-Refer to Figure 5-4. Assume the section of the demand curve from B to C corresponds to prices between $0 and $15. Then, when the price changes between $7 and $9,

Accepted Answer

A) quantity demanded changes proportionately less than the price. 
B) quantity demanded changes proportionately more than the price. 
C) quantity demanded changes the same amount proportionately as price. 
D) the price elasticity of demand equals zero. 
A) quantity demanded changes proportionately less than the price. 
B) quantity demanded changes proportionately more than the price. 
C) quantity demanded changes the same amount proportionately as price. 
D) the price elasticity of demand equals zero.

Question 12

For a good that is a luxury, demand

Accepted Answer

A) tends to be inelastic. 
B) tends to be elastic. 
C) has unit elasticity. 
D) cannot be represented by a demand curve in the usual way. 
A) tends to be inelastic. 
B) tends to be elastic. 
C) has unit elasticity. 
D) cannot be represented by a demand curve in the usual way.

Question 13

Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls.

Accepted Answer

A) True 
 B)False

Question 14

A manufacturer produces 400 units when the market price of $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

Accepted Answer

A) 0.45. 
B) 2.0. 
C) 2.2. 
D) 200. 
A) 0.45. 
B) 2.0. 
C) 2.2. 
D) 200.

Question 15

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

Accepted Answer

A) 1.5% in the short run and 6% in the long run. 
B) 6% in the short run and 1.5% in the long run. 
C) 16.7% in the short run and 4.2% in the long run. 
D) 4.2% in the short run and 16.7% in the long run. 
A) 1.5% in the short run and 6% in the long run. 
B) 6% in the short run and 1.5% in the long run. 
C) 16.7% in the short run and 4.2% in the long run. 
D) 4.2% in the short run and 16.7% in the long run.

Question 16

A key determinant of the price elasticity of supply is the

Accepted Answer

A) number of close substitutes for the good in question. 
B) extent to which buyers alter their quantities demanded in response to changes in prices. 
C) length of the time period. 
D) extent to which buyers alter their quantities demanded in response to changes in their incomes. 
A) number of close substitutes for the good in question. 
B) extent to which buyers alter their quantities demanded in response to changes in prices. 
C) length of the time period. 
D) extent to which buyers alter their quantities demanded in response to changes in their incomes.

Question 17

Which of the following statements is valid when the market supply curve is vertical?

Accepted Answer

A) Market quantity supplied does not change when the price changes. 
B) Supply is perfectly elastic. 
C) An increase in market demand will increase the equilibrium quantity. 
D) An increase in market demand will not increase the equilibrium price. 
A) Market quantity supplied does not change when the price changes. 
B) Supply is perfectly elastic. 
C) An increase in market demand will increase the equilibrium quantity. 
D) An increase in market demand will not increase the equilibrium price.

Question 18

There are very few, if any, good substitutes for motor oil. Therefore, the

Accepted Answer

A) demand for motor oil would tend to be inelastic. 
B) demand for motor oil would tend to be elastic. 
C) demand for motor oil would tend to respond strongly to changes in prices of other goods. 
D) supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars. 
A) demand for motor oil would tend to be inelastic. 
B) demand for motor oil would tend to be elastic. 
C) demand for motor oil would tend to respond strongly to changes in prices of other goods. 
D) supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Question 19

Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

A) True 
 B)False

Question 20

Table 5-1
 $$\begin{array} { | c | c | } 
\hline \text { Gond } & \text { Price Elaticity of Demend } \
\hline \text { A } & 1.3 \
\hline \mathrm { B } & \mathbf { 2 . 1 } \
\hline
\end{array}$$
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Accepted Answer

A) A is grapes, and B is fruit. 
B) A is T-shirts, and B is socks. 
C) A is train tickets before cars were invented, and B is train tickets after cars were invented. 
D) A is diamond necklaces, and B is beds. 
A) A is grapes, and B is fruit. 
B) A is T-shirts, and B is socks. 
C) A is train tickets before cars were invented, and B is train tickets after cars were invented. 
D) A is diamond necklaces, and B is beds.

Exam 5: Elasticity and Its Application

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

Suppose good X has a negative income elasticity of demand. This implies that good X is

The price elasticity of supply measures how responsive

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

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

Which of the following is not possible?

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

For which of the following goods is the income elasticity of demand likely lowest?

Figure 5-4 -Refer to Figure 5-4. Assume the section of the demand curve from B to C corresponds to prices between $0 and $15. Then, when the price changes between $7 and $9,

For a good that is a luxury, demand

Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls.

A manufacturer produces 400 units when the market price of $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

A key determinant of the price elasticity of supply is the

Which of the following statements is valid when the market supply curve is vertical?

There are very few, if any, good substitutes for motor oil. Therefore, the

Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.

Table 5-1 Gond Price Elaticity of Demend A 1.3 -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

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

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 Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

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