Question 1

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to

Accepted Answer

A) an inelastic demand for oil and a reduction in the amount of oil supplied. 
B) a reduction in the amount of oil supplied and a world-wide oil embargo. 
C) a world-wide oil embargo and an elastic demand for oil. 
D) a reduction in the amount of oil supplied and an elastic demand for oil. 
A) an inelastic demand for oil and a reduction in the amount of oil supplied. 
B) a reduction in the amount of oil supplied and a world-wide oil embargo. 
C) a world-wide oil embargo and an elastic demand for oil. 
D) a reduction in the amount of oil supplied and an elastic demand for oil.

Question 2

Which of the following statements is correct?

Accepted Answer

A) The demand for natural gas is more elastic over a short period of time than over a long period of time. 
B) The demand for smoke alarms is more elastic than the demand for Persian rugs. 
C) The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. 
D) All of the above are correct. 
A) The demand for natural gas is more elastic over a short period of time than over a long period of time. 
B) The demand for smoke alarms is more elastic than the demand for Persian rugs. 
C) The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. 
D) All of the above are correct.

Question 3

The demand for Hubba Bubba bubble gum is likely

Accepted Answer

A) elastic because gum is expensive relative to other snacks. 
B) elastic because there are many close substitutes for Hubba Bubba. 
C) elastic because bubble gum is regarded as a necessity by many people. 
D) inelastic because it is consumed quickly, making the relevant time horizon short. 
A) elastic because gum is expensive relative to other snacks. 
B) elastic because there are many close substitutes for Hubba Bubba. 
C) elastic because bubble gum is regarded as a necessity by many people. 
D) inelastic because it is consumed quickly, making the relevant time horizon short.

Question 4

Use the graph shown to answer the following questions. Put the correct letter(s) in the blank.   
a. The elastic section of the graph is represented by section from _______.b. The inelastic section of the graph is represented by section from _______.c. The unit elastic section of the graph is represented by section _______.d. The portion of the graph in which a decrease in price would cause total revenue to fall would be from _________.e. The portion of the graph in which a decrease in price would cause total revenue to rise would be from _________.f. The portion of the graph in which a decrease in price would not cause a change in total revenue would be _________.g. The section of the graph in which total revenue would be at a maximum would be _______.h. The section of the graph in which elasticity is greater than 1 is _______.i. The section of the graph in which elasticity is equal to 1 is ______.j. The section of the graph in which elasticity is less than 1 is _______.

Accepted Answer

a.A to B
b.B to C
c.

Question 5

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.

Question 6

Food and clothing tend to have

Accepted Answer

A) small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods. 
B) small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels. 
C) large income elasticities because they are necessities. 
D) large income elasticities because they are relatively inexpensive. 
A) small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods. 
B) small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels. 
C) large income elasticities because they are necessities. 
D) large income elasticities because they are relatively inexpensive.

Question 7

Which of the following is likely to have the most price inelastic demand?

Accepted Answer

A) lattés 
B) filet mignon 
C) Grey Goose® vodka 
D) milk 
A) lattés 
B) filet mignon 
C) Grey Goose® vodka 
D) milk

Question 8

The income elasticity of demand for caviar tends to be

Accepted Answer

A) high because caviar is relatively expensive. 
B) low because caviar is packaged in small containers. 
C) high because buyers generally feel that they can do without it. 
D) low because it is almost always in short supply. 
A) high because caviar is relatively expensive. 
B) low because caviar is packaged in small containers. 
C) high because buyers generally feel that they can do without it. 
D) low because it is almost always in short supply.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is

Accepted Answer

A) perfectly inelastic, and the demand curve is vertical. 
B) elastic, and the demand curve is a straight, downward-sloping line. 
C) perfectly elastic, and the demand curve is horizontal. 
D) elastic, and the demand curve is something other than a straight, downward-sloping line. 
A) perfectly inelastic, and the demand curve is vertical. 
B) elastic, and the demand curve is a straight, downward-sloping line. 
C) perfectly elastic, and the demand curve is horizontal. 
D) elastic, and the demand curve is something other than a straight, downward-sloping line.

Question 11

Figure 5-2  
-Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand?

Accepted Answer

A) D1 
B) D2 
C) D3 
D) All of the above are equally elastic. 
A) D1 
B) D2 
C) D3 
D) All of the above are equally elastic.

Question 12

At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

Accepted Answer

A) 1.14. 
B) 1.00. 
C) 0.875. 
D) 0.50. 
A) 1.14. 
B) 1.00. 
C) 0.875. 
D) 0.50.

Question 13

The supply of oil is likely to be

Accepted Answer

A) inelastic in both the short run and long run. 
B) elastic in both the short run and long run. 
C) elastic in the short run and inelastic in the long run. 
D) inelastic in the short run and elastic in the long run. 
A) inelastic in both the short run and long run. 
B) elastic in both the short run and long run. 
C) elastic in the short run and inelastic in the long run. 
D) inelastic in the short run and elastic in the long run.

Question 14

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

Accepted Answer

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

Question 15

The price elasticity of demand measures the

Accepted Answer

A) magnitude of the response in quantity demanded to a change in price. 
B) direction of the shift in the demand curve in response to a market event. 
C) size of the shortage created by the increase in demand. 
D) responsiveness of quantity demanded to a change in income. 
A) magnitude of the response in quantity demanded to a change in price. 
B) direction of the shift in the demand curve in response to a market event. 
C) size of the shortage created by the increase in demand. 
D) responsiveness of quantity demanded to a change in income.

Question 16

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is

Accepted Answer

A) income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
B) income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
C) price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
D) price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
A) income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
B) income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
C) price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
D) price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

Question 17

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

Accepted Answer

A) raise the price, reduce the quantity, decrease total revenues, and decrease crime. 
B) lower the price, increase the quantity, increase total revenues, and increase crime. 
C) raise the price, increase the quantity, decrease total revenues, and increase crime. 
D) raise the price, reduce the quantity, increase total revenues, and increase crime. 
A) raise the price, reduce the quantity, decrease total revenues, and decrease crime. 
B) lower the price, increase the quantity, increase total revenues, and increase crime. 
C) raise the price, increase the quantity, decrease total revenues, and increase crime. 
D) raise the price, reduce the quantity, increase total revenues, and increase crime.

Question 18

Table 5-5
  
-Refer to Table 5-5. Which of the three supply curves represents the least elastic supply?

Accepted Answer

A) supply curve A 
B) supply curve B 
C) supply curve C 
D) There is no difference in the elasticity of the three supply curves. 
A) supply curve A 
B) supply curve B 
C) supply curve C 
D) There is no difference in the elasticity of the three supply curves.

Question 19

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 20

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center in order to meet expenses. The mayor advises you to decrease the price of a day pass. The city manager recommends increasing the price of a day pass. You realize that

Accepted Answer

A) the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. 
B) both the mayor and the city manager think that demand is elastic. 
C) both the mayor and the city manager think that demand is inelastic. 
D) the mayor thinks demand is inelastic, and the city manager thinks demand is elastic. 
A) the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. 
B) both the mayor and the city manager think that demand is elastic. 
C) both the mayor and the city manager think that demand is inelastic. 
D) the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Exam 5: Elasticity and Its Application

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to

Which of the following statements is correct?

The demand for Hubba Bubba bubble gum is likely

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

Food and clothing tend to have

Which of the following is likely to have the most price inelastic demand?

The income elasticity of demand for caviar tends to be

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

If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is

Figure 5-2 -Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand?

At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

The supply of oil is likely to be

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

The price elasticity of demand measures the

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

Table 5-5 -Refer to Table 5-5. Which of the three supply curves represents the least elastic supply?

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

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center in order to meet expenses. The mayor advises you to decrease the price of a day pass. The city manager recommends increasing the price of a day pass. You realize that

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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