Question 1

While an increase in total agricultural production may benefit farmers as a group, it will not benefit an individual farmer to increase his production.

Accepted Answer

A) True 
 B)False

Question 2

Food and clothing tend to have:

Accepted Answer

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

Question 3

The price elasticity of supply measures how much:

Accepted Answer

A)  the quantity supplied responds to changes in input prices 
B)  the quantity supplied responds to changes in the price of the good 
C)  the price of the good responds to changes in supply 
D)  sellers respond to changes in technology 
A)  the quantity supplied responds to changes in input prices 
B)  the quantity supplied responds to changes in the price of the good 
C)  the price of the good responds to changes in supply 
D)  sellers respond to changes in technology

Question 4

The demand for a good is inelastic if the quantity demanded decreases substantially after a small increase in the price

Accepted Answer

A) True 
 B)False

Question 5

The midpoint method is used to calculate elasticity because it gives the same answer regardless of the direction of the change between two points.

Accepted Answer

A) True 
 B)False

Question 6

Table 5-1
Suppose a coffee shop faces the following demand schedule for coffee.
  
-Refer to Table 5-1. Notice that if the price is lowered from $2.00 to $1.50, total revenue falls from $2000 to $1800. This means that over this price range, the demand for coffee must be:

Accepted Answer

A)  price elastic 
B)  price inelastic 
C)  price unit elastic 
D)  income elastic 
A)  price elastic 
B)  price inelastic 
C)  price unit elastic 
D)  income elastic

Question 7

Goods tend to have more elastic demand over shorter time horizons.

Accepted Answer

A) True 
 B)False

Question 8

In the 1970s OPEC generated high prices for oil but could not sustain this in the mid-80s and 90s. The reason was that both the supply and demand elasticity for oil is less elastic in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 9

If a supply curve is horizontal, it is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

Accepted Answer

A) True 
 B)False

Question 10

If law enforcement agencies reduce the number of illegal drugs entering the country and the demand for drugs is inelastic:

Accepted Answer

A)  the price of drugs will fall and drug-related crime will fall 
B)  the price of drugs will fall and drug-related crime will increase 
C)  the price of drugs will rise and drug-related crime will fall 
D)  the price of drugs will rise and drug-related crime will increase 
A)  the price of drugs will fall and drug-related crime will fall 
B)  the price of drugs will fall and drug-related crime will increase 
C)  the price of drugs will rise and drug-related crime will fall 
D)  the price of drugs will rise and drug-related crime will increase

Question 11

If you think good wine is a luxury, then your demand for wine will be:

Accepted Answer

A)  elastic 
B)  inelastic 
C)  unit elastic 
D)  strong 
A)  elastic 
B)  inelastic 
C)  unit elastic 
D)  strong

Question 12

Graph 5-5
  
-In Graph 5-5, which supply curve is most likely the long-run supply curve?

Accepted Answer

A)  S1 
B)  S2 
C)  S3 
D)  all of the above are equally likely to be the long-run supply curve 
A)  S1 
B)  S2 
C)  S3 
D)  all of the above are equally likely to be the long-run supply curve

Question 13

If the supply of Monet paintings is perfectly inelastic, an increase in the demand for them will increase:

Accepted Answer

A)  equilibrium quantity but reduce equilibrium price 
B)  equilibrium quantity but equilibrium price will be unchanged 
C)  equilibrium price but equilibrium quantity will be unchanged 
D)  equilibrium price but reduce equilibrium quantity 
A)  equilibrium quantity but reduce equilibrium price 
B)  equilibrium quantity but equilibrium price will be unchanged 
C)  equilibrium price but equilibrium quantity will be unchanged 
D)  equilibrium price but reduce equilibrium quantity

Question 14

Cross-price elasticity of demand is calculated as:

Accepted Answer

A)  the percentage change in quantity demanded of good one divided by the percentage change in the price of good two 
B)  the total percentage change in quantity demanded divided by the total percentage change in price 
C)  the percentage change in quantity demanded divided by the percentage change in income 
D)  none of the above answers is correct 
A)  the percentage change in quantity demanded of good one divided by the percentage change in the price of good two 
B)  the total percentage change in quantity demanded divided by the total percentage change in price 
C)  the percentage change in quantity demanded divided by the percentage change in income 
D)  none of the above answers is correct

Question 15

A perfectly inelastic demand implies that buyers:

Accepted Answer

A)  decrease their purchases when the price rises 
B)  respond substantially to an increase in price 
C)  increase their purchases only slightly when the price falls 
D)  purchase the same amount when the price rises or falls 
A)  decrease their purchases when the price rises 
B)  respond substantially to an increase in price 
C)  increase their purchases only slightly when the price falls 
D)  purchase the same amount when the price rises or falls

Question 16

In the long run, the quantity supplied of most goods:

Accepted Answer

A)  can respond substantially to a change in price 
B)  cannot respond much to a change in price 
C)  cannot respond at all to a change in price 
D)  will naturally increase regardless of what happens to price 
A)  can respond substantially to a change in price 
B)  cannot respond much to a change in price 
C)  cannot respond at all to a change in price 
D)  will naturally increase regardless of what happens to price

Question 17

Drug education, which reduces the demand for drugs, can reduce both drug use and drug-related crime.

Accepted Answer

A) True 
 B)False

Question 18

The main reason for using the midpoint method is that it:

Accepted Answer

A)  gives the same answer regardless of the direction of change 
B)  uses fewer numbers 
C)  rounds prices to the nearest dollar 
D)  rounds quantities to the nearest whole unit 
A)  gives the same answer regardless of the direction of change 
B)  uses fewer numbers 
C)  rounds prices to the nearest dollar 
D)  rounds quantities to the nearest whole unit

Question 19

Assume that a four per cent increase in income results in a two per cent increase in the quantity demanded of a good. The income elasticity of demand for the good is:

Accepted Answer

A)  negative and therefore the good is an inferior good 
B)  negative and therefore the good is a normal good 
C)  positive and therefore the good is an inferior good 
D)  positive and therefore the good is a normal good 
A)  negative and therefore the good is an inferior good 
B)  negative and therefore the good is a normal good 
C)  positive and therefore the good is an inferior good 
D)  positive and therefore the good is a normal good

Question 20

The cross-price elasticity of demand will be positive for complement goods and negative for substitute goods.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

While an increase in total agricultural production may benefit farmers as a group, it will not benefit an individual farmer to increase his production.

Food and clothing tend to have:

The price elasticity of supply measures how much:

The demand for a good is inelastic if the quantity demanded decreases substantially after a small increase in the price

The midpoint method is used to calculate elasticity because it gives the same answer regardless of the direction of the change between two points.

Table 5-1 Suppose a coffee shop faces the following demand schedule for coffee. -Refer to Table 5-1. Notice that if the price is lowered from $2.00 to $1.50, total revenue falls from $2000 to $1800. This means that over this price range, the demand for coffee must be:

Goods tend to have more elastic demand over shorter time horizons.

In the 1970s OPEC generated high prices for oil but could not sustain this in the mid-80s and 90s. The reason was that both the supply and demand elasticity for oil is less elastic in the short run than in the long run.

If a supply curve is horizontal, it is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

If law enforcement agencies reduce the number of illegal drugs entering the country and the demand for drugs is inelastic:

If you think good wine is a luxury, then your demand for wine will be:

Graph 5-5 -In Graph 5-5, which supply curve is most likely the long-run supply curve?

If the supply of Monet paintings is perfectly inelastic, an increase in the demand for them will increase:

Cross-price elasticity of demand is calculated as:

A perfectly inelastic demand implies that buyers:

In the long run, the quantity supplied of most goods:

Drug education, which reduces the demand for drugs, can reduce both drug use and drug-related crime.

The main reason for using the midpoint method is that it:

Assume that a four per cent increase in income results in a two per cent increase in the quantity demanded of a good. The income elasticity of demand for the good is:

The cross-price elasticity of demand will be positive for complement goods and negative for substitute goods.

Ten Lessons From 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

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity 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 Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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

Filters