Question 1

Figure 5-10  
-Refer to Figure 5-10.An increase in price from $20 to $30 would

Accepted Answer

A)  increase total revenue by $2,000. 
B)  decrease total revenue by $2,000. 
C)  increase total revenue by $1,000. 
D)  decrease total revenue by $1,000. 
A)  increase total revenue by $2,000. 
B)  decrease total revenue by $2,000. 
C)  increase total revenue by $1,000. 
D)  decrease total revenue by $1,000.

Question 2

For a particular good,a 3 percent increase in price causes a 10 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Accepted Answer

A)  The relevant time horizon is short. 
B)  The good is a necessity. 
C)  The market for the good is broadly defined. 
D)  There are many close substitutes for this good. 
A)  The relevant time horizon is short. 
B)  The good is a necessity. 
C)  The market for the good is broadly defined. 
D)  There are many close substitutes for this good.

Question 3

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery.The first step you would take would be to

Accepted Answer

A)  increase the price of every loaf of bread in the store. 
B)  look for ways to cut costs and increase profit for the bakery. 
C)  determine the price elasticity of demand for the bakery's products. 
D)  determine the price elasticity of supply for the bakery's products. 
A)  increase the price of every loaf of bread in the store. 
B)  look for ways to cut costs and increase profit for the bakery. 
C)  determine the price elasticity of demand for the bakery's products. 
D)  determine the price elasticity of supply for the bakery's products.

Question 4

In general,elasticity is a measure of

Accepted Answer

A)  the extent to which advances in technology are adopted by producers. 
B)  the extent to which a market is competitive. 
C)  how firms' profits respond to changes in market prices. 
D)  how much buyers and sellers respond to changes in market conditions. 
A)  the extent to which advances in technology are adopted by producers. 
B)  the extent to which a market is competitive. 
C)  how firms' profits respond to changes in market prices. 
D)  how much buyers and sellers respond to changes in market conditions.

Question 5

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

Accepted Answer

A)  water 
B)  sapphire pendant necklaces 
C)  filet mignon steaks 
D)  fresh fruit 
A)  water 
B)  sapphire pendant necklaces 
C)  filet mignon steaks 
D)  fresh fruit

Question 6

As we move downward and to the right along a linear,downward-sloping demand curve,

Accepted Answer

A)  both slope and elasticity remain constant. 
B)  slope changes but elasticity remains constant. 
C)  both slope and elasticity change. 
D)  slope remains constant but elasticity changes. 
A)  both slope and elasticity remain constant. 
B)  slope changes but elasticity remains constant. 
C)  both slope and elasticity change. 
D)  slope remains constant but elasticity changes.

Question 7

Some firms eventually experience problems with their capacity to produce output as their output levels increase.For these firms,

Accepted Answer

A)  market power is substantial. 
B)  supply is perfectly inelastic. 
C)  supply is more elastic at low levels of output and less elastic at high levels of output. 
D)  supply is less elastic at low levels of output and more elastic at high levels of output. 
A)  market power is substantial. 
B)  supply is perfectly inelastic. 
C)  supply is more elastic at low levels of output and less elastic at high levels of output. 
D)  supply is less elastic at low levels of output and more elastic at high levels of output.

Question 8

Demand is said to be inelastic if

Accepted Answer

A)  buyers respond substantially to changes in the price of the good. 
B)  demand shifts only slightly when the price of the good changes. 
C)  the quantity demanded changes only slightly when the price of the good changes. 
D)  the price of the good responds only slightly to changes in demand. 
A)  buyers respond substantially to changes in the price of the good. 
B)  demand shifts only slightly when the price of the good changes. 
C)  the quantity demanded changes only slightly when the price of the good changes. 
D)  the price of the good responds only slightly to changes in demand.

Question 9

Figure 5-5  
-Refer to Figure 5-5.Using the midpoint method,demand is unit elastic between prices of

Accepted Answer

A)  $18 and $24. 
B)  $24 and $30. 
C)  $24 and $36. 
D)  $30 and $36. 
A)  $18 and $24. 
B)  $24 and $30. 
C)  $24 and $36. 
D)  $30 and $36.

Question 10

Danita rescues dogs from her local animal shelter.When Danita's income rises by 7 percent,her quantity demanded of dog biscuits increases by 12 percent.For Danita,the income elasticity of demand for dog biscuits is

Accepted Answer

A)  negative,and dog biscuits are a normal good. 
B)  negative,and dog biscuits are an inferior good. 
C)  positive,and dog biscuits are an inferior good. 
D)  positive,and dog biscuits are a normal good. 
A)  negative,and dog biscuits are a normal good. 
B)  negative,and dog biscuits are an inferior good. 
C)  positive,and dog biscuits are an inferior good. 
D)  positive,and dog biscuits are a normal good.

Question 11

Refer to Figure 5-18.Which supply curve represents perfectly inelastic supply?

Accepted Answer

A)  S1 
B)  S2 
C)  S3 
D)  None of the supply curves is perfectly inelastic. 
A)  S1 
B)  S2 
C)  S3 
D)  None of the supply curves is perfectly inelastic.

Question 12

For a good that is a necessity,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

If the price of milk rises,when is the price elasticity of demand likely to be the lowest?

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 14

A decrease in supply will cause the smallest increase in price when

Accepted Answer

A)  both supply and demand are inelastic. 
B)  demand is elastic and supply is inelastic. 
C)  both supply and demand are elastic. 
D)  demand is inelastic and supply is elastic. 
A)  both supply and demand are inelastic. 
B)  demand is elastic and supply is inelastic. 
C)  both supply and demand are elastic. 
D)  demand is inelastic and supply is elastic.

Question 15

Demand is inelastic if the price elasticity of demand is

Accepted Answer

A)  less than 1. 
B)  equal to 1. 
C)  greater than 1. 
D)  equal to 0. 
A)  less than 1. 
B)  equal to 1. 
C)  greater than 1. 
D)  equal to 0.

Question 16

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 17

Holding all other forces constant,if increasing 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 because 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 because a price increase always leads to an increase in total revenue.

Question 18

Suppose you are in charge of setting prices at a local sandwich shop.The business needs to increase its total revenue,and your job is on the line.If the demand for sandwiches is elastic,you

Accepted Answer

A)  should increase the price of sandwiches. 
B)  should decrease the price of sandwiches. 
C)  should not change the price of sandwiches. 
D)  could not determine what to do with price until you determine whether supply is elastic or inelastic. 
A)  should increase the price of sandwiches. 
B)  should decrease the price of sandwiches. 
C)  should not change the price of sandwiches. 
D)  could not determine what to do with price until you determine whether supply is elastic or inelastic.

Question 19

For a particular good,a 12 percent increase in price causes a 3 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Accepted Answer

A)  There are many substitutes for this good. 
B)  The good is a necessity. 
C)  The market for the good is narrowly defined. 
D)  The relevant time horizon is long. 
A)  There are many substitutes for this good. 
B)  The good is a necessity. 
C)  The market for the good is narrowly defined. 
D)  The relevant time horizon is long.

Question 20

Scenario 5-1
Suppose that the supply of aged cheddar cheese is inelastic,and the supply of bread is elastic.Both goods are considered to be normal goods by a majority of consumers.Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-1.The price elasticity of supply for aged cheddar cheese could be

Accepted Answer

A)  -1. 
B) 0.5. 
C) 0. 
D) 1.5. 
A)  -1. 
B) 0.5. 
C) 0. 
D) 1.5.

Exam 5: Elasticity and Its Application

Figure 5-10 -Refer to Figure 5-10.An increase in price from $20 to $30 would

For a particular good,a 3 percent increase in price causes a 10 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery.The first step you would take would be to

In general,elasticity is a measure of

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

As we move downward and to the right along a linear,downward-sloping demand curve,

Some firms eventually experience problems with their capacity to produce output as their output levels increase.For these firms,

Demand is said to be inelastic if

Figure 5-5 -Refer to Figure 5-5.Using the midpoint method,demand is unit elastic between prices of

Danita rescues dogs from her local animal shelter.When Danita's income rises by 7 percent,her quantity demanded of dog biscuits increases by 12 percent.For Danita,the income elasticity of demand for dog biscuits is

Refer to Figure 5-18.Which supply curve represents perfectly inelastic supply?

For a good that is a necessity,demand

If the price of milk rises,when is the price elasticity of demand likely to be the lowest?

A decrease in supply will cause the smallest increase in price when

Demand is inelastic if the price elasticity of demand is

Which of the following statements is correct?

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

Suppose you are in charge of setting prices at a local sandwich shop.The business needs to increase its total revenue,and your job is on the line.If the demand for sandwiches is elastic,you

For a particular good,a 12 percent increase in price causes a 3 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

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 Costs of Production

Firms in Competitive Markets

Monopoly

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

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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