Question 1

If the price of natural gas rises,when is the price elasticity of demand likely to be the highest?

Accepted Answer

A)  immediately after the price increase 
B)  one month after the price increase 
C)  three months after the price increase 
D)  one year after the price increase 
A)  immediately after the price increase 
B)  one month after the price increase 
C)  three months after the price increase 
D)  one year after the price increase

Question 2

Figure 5-13  
-Refer to Figure 5-13.Along which of these segments of the supply curve is supply most elastic?

Accepted Answer

A)  between A and B 
B)  between C and D 
C)  between D and H 
D)  between G and H 
A)  between A and B 
B)  between C and D 
C)  between D and H 
D)  between G and H

Question 3

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 4

Figure 5-4  
-Refer to Figure 5-4.Assume the section of the demand curve from A to B corresponds to prices between $6 and $12.Then,when the price increases from $8 to $10,

Accepted Answer

A)  the percent decrease in the quantity demanded exceeds the percent increase in the price. 
B)  the percent increase in the price exceeds the percent decrease in the quantity demanded. 
C)  sellers' total revenue increases as a result. 
D)  it is possible that the quantity demanded fell from 550 to 500 as a result. 
A)  the percent decrease in the quantity demanded exceeds the percent increase in the price. 
B)  the percent increase in the price exceeds the percent decrease in the quantity demanded. 
C)  sellers' total revenue increases as a result. 
D)  it is possible that the quantity demanded fell from 550 to 500 as a result.

Question 5

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 6

Figure 5-3  
-The midpoint method for calculating elasticities is convenient in that it allows us to

Accepted Answer

A)  ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price. 
B)  calculate the same value for the elasticity,regardless of whether the price increases or decreases. 
C)  assume that sellers' total revenue stays constant when the price changes. 
D)  restrict all elasticity values to between 0 and 1. 
A)  ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price. 
B)  calculate the same value for the elasticity,regardless of whether the price increases or decreases. 
C)  assume that sellers' total revenue stays constant when the price changes. 
D)  restrict all elasticity values to between 0 and 1.

Question 7

Suppose a producer is able to separate customers into two groups,one having an inelastic demand and the other having an elastic demand.If the producer's objective is to increase total revenue,she should

Accepted Answer

A)  increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand. 
B)  decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand. 
C)  decrease the price to both groups of customers. 
D)  increase the price for both groups of customers. 
A)  increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand. 
B)  decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand. 
C)  decrease the price to both groups of customers. 
D)  increase the price for both groups of customers.

Question 8

Figure 5-5  
-Refer to Figure 5-5.At a price of $48 per unit,sellers' total revenue amounts to

Accepted Answer

A)  $150. 
B)  $200. 
C)  $288. 
D)  $364. 
A)  $150. 
B)  $200. 
C)  $288. 
D)  $364.

Question 9

Along the elastic portion of a linear demand curve,total revenue rises as price rises.

Accepted Answer

A) True 
 B)False

Question 10

Alice says that she would buy one banana split a day regardless of the price.If she is telling the truth,

Accepted Answer

A)  Alice's demand for banana splits is perfectly inelastic. 
B)  Alice's price elasticity of demand for banana splits is 1. 
C)  Alice's income elasticity of demand for banana splits is 0. 
D)  None of the above answers is correct. 
A)  Alice's demand for banana splits is perfectly inelastic. 
B)  Alice's price elasticity of demand for banana splits is 1. 
C)  Alice's income elasticity of demand for banana splits is 0. 
D)  None of the above answers is correct.

Question 11

In January the price of widgets was $1.00,and Wendy's Widgets produced 80 widgets.In February the price of widgets was $1.50,and Wendy's Widgets produced 110 widgets.In March the price of widgets was $2.00,and Wendy's Widgets produced 140 widgets.The price elasticity of supply of Wendy's Widgets was

Accepted Answer

A)  0.79 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
B)  1.27 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
C)  0.79 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
D)  1.27 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
A)  0.79 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
B)  1.27 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
C)  0.79 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
D)  1.27 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00.

Question 12

If the price elasticity of supply for a good is equal to infinity,then

Accepted Answer

A)  the supply curve is vertical. 
B)  the supply curve is horizontal. 
C)  the supply curve also has a slope equal to infinity. 
D)  the quantity supplied is constant regardless of the price. 
A)  the supply curve is vertical. 
B)  the supply curve is horizontal. 
C)  the supply curve also has a slope equal to infinity. 
D)  the quantity supplied is constant regardless of the price.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

When we move upward and to the left along a linear,downward-sloping demand curve,price elasticity of demand

Accepted Answer

A)  first becomes smaller,then larger. 
B)  always becomes larger. 
C)  always becomes smaller. 
D)  first becomes larger,then smaller. 
A)  first becomes smaller,then larger. 
B)  always becomes larger. 
C)  always becomes smaller. 
D)  first becomes larger,then smaller.

Question 15

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 16

Figure 5-4  
-Refer to Figure 5-4.The section of the demand curve from B to C represents the

Accepted Answer

A)  elastic section of the demand curve. 
B)  perfectly elastic section of the demand curve. 
C)  unit elastic section of the demand curve. 
D)  inelastic section of the demand curve. 
A)  elastic section of the demand curve. 
B)  perfectly elastic section of the demand curve. 
C)  unit elastic section of the demand curve. 
D)  inelastic section of the demand curve.

Question 17

Holding all other forces constant,if decreasing the price of a good leads to a decrease in total revenue,then the demand for the good must be

Accepted Answer

A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct,since a price increase always leads to an increase in total revenue. 
A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct,since a price increase always leads to an increase in total revenue.

Question 18

If the quantity demanded of a certain good responds only slightly to a change in the price of the good,then

Accepted Answer

A)  the demand for the good is said to be elastic. 
B)  the demand for the good is said to be inelastic. 
C)  the law of demand does not apply to the good. 
D)  the demand curve for the good shifts only slightly in response to a change in price. 
A)  the demand for the good is said to be elastic. 
B)  the demand for the good is said to be inelastic. 
C)  the law of demand does not apply to the good. 
D)  the demand curve for the good shifts only slightly in response to a change in price.

Question 19

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 20

Figure 5-4  
-Refer to Figure 5-4.If the price decreases in the region of the demand curve between points B and C,we can expect total revenue to

Accepted Answer

A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  first increase,then decrease until total revenue is maximized. 
A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  first increase,then decrease until total revenue is maximized.

Exam 5: Elasticity and Its Application

If the price of natural gas rises,when is the price elasticity of demand likely to be the highest?

Figure 5-13 -Refer to Figure 5-13.Along which of these segments of the supply curve is supply most elastic?

Figure 5-4 -Refer to Figure 5-4.Assume the section of the demand curve from A to B corresponds to prices between $6 and $12.Then,when the price increases from $8 to $10,

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Figure 5-3 -The midpoint method for calculating elasticities is convenient in that it allows us to

Suppose a producer is able to separate customers into two groups,one having an inelastic demand and the other having an elastic demand.If the producer's objective is to increase total revenue,she should

Figure 5-5 -Refer to Figure 5-5.At a price of $48 per unit,sellers' total revenue amounts to

Along the elastic portion of a linear demand curve,total revenue rises as price rises.

Alice says that she would buy one banana split a day regardless of the price.If she is telling the truth,

If the price elasticity of supply for a good is equal to infinity,then

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

When we move upward and to the left along a linear,downward-sloping demand curve,price elasticity of demand

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

Figure 5-4 -Refer to Figure 5-4.The section of the demand curve from B to C represents the

Holding all other forces constant,if decreasing the price of a good leads to a decrease in total revenue,then the demand for the good must be

If the quantity demanded of a certain good responds only slightly to a change in the price of the good,then

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

Figure 5-4 -Refer to Figure 5-4.If the price decreases in the region of the demand curve between points B and C,we can expect total revenue to

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

Monopolistic Competition

Oligopoly

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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