Question 1

A demand curve that is horizontal indicates that the commodity

Accepted Answer

A)  has few substitutes. 
B)  must be very cheap. 
C)  is a necessity. 
D)  has a large number of substitutes. 
A)  has few substitutes. 
B)  must be very cheap. 
C)  is a necessity. 
D)  has a large number of substitutes.

Question 2

Assume that a 50 percent gasoline tax led to a large increase in its price and only a small decrease in the quantity of gasoline demanded. Economic analysis would lead one to conclude that

Accepted Answer

A)  gasoline should be taxed because the benefits of the tax would exceed the costs. 
B)  gasoline should not be taxed because the benefits are uncertain. 
C)  gasoline should not be taxed on ethical grounds since ethical benefits and costs can't be measured. 
D)  the benefits of taxing gasoline is a normative issue. Economic analysis can be used to contribute to discussion of this issue but cannot decide it. 
A)  gasoline should be taxed because the benefits of the tax would exceed the costs. 
B)  gasoline should not be taxed because the benefits are uncertain. 
C)  gasoline should not be taxed on ethical grounds since ethical benefits and costs can't be measured. 
D)  the benefits of taxing gasoline is a normative issue. Economic analysis can be used to contribute to discussion of this issue but cannot decide it.

Question 3

Suppose the price elasticity of demand for methamphetamine is -0.35. If decriminalization caused the price of methamphetamine to fall by 75 percent, what will be the percentage increase in the quantity of methamphetamine demanded? If the price elasticity is -3.5, what will be the percentage increase in quantity demanded?

Accepted Answer

If price elasticity of demand is -0.35,

Question 4

A study of the effects of the minimum wage on employment of low-skilled workers estimated the price elasticity of demand for low-skilled workers is -0.75. Suppose that the government is considering raising the minimum wage from $7.25 per hour to $7.75 per hour. Based on this information, calculate the percentage change in the employment of low skilled workers. Use the midpoint formula.

Accepted Answer

percent ch

Question 5

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. Which of the following statements accurately predicts the resulting decrease in price?

Accepted Answer

A)  The more elastic the supply curve, the greater the price increase. 
B)  The more elastic the supply curve, the smaller the price decrease. 
C)  The increase in price is not affected by the elasticity of the supply curve. 
D)  The decrease in price will always be proportional to the magnitude of the demand shift. 
A)  The more elastic the supply curve, the greater the price increase. 
B)  The more elastic the supply curve, the smaller the price decrease. 
C)  The increase in price is not affected by the elasticity of the supply curve. 
D)  The decrease in price will always be proportional to the magnitude of the demand shift.

Question 6

The most important determinant of the price elasticity of demand for a good is

Accepted Answer

A)  the definition of the market for a good. 
B)  the availability of substitutes for the good. 
C)  the share of the good in the consumer's budget. 
D)  whether the good is a necessity or a luxury. 
A)  the definition of the market for a good. 
B)  the availability of substitutes for the good. 
C)  the share of the good in the consumer's budget. 
D)  whether the good is a necessity or a luxury.

Question 7

Table 6-5
  
-Refer to Table 6-5. Katie Graham owns a kayak rental service in Santa Barbara. Table 6.3 below shows her estimated demand schedule for kayak rentals per week. She would like to increase her sales revenue by changing the price she charges for rentals. At present she charges $75. Based on the information in the table, Katie

Accepted Answer

A)  is not able to increase her revenue by changing her price because the demand for kayak rentals is unit-elastic. 
B)  should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic. 
C)  should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic. 
D)  should raise her price to earn the most revenue. 
A)  is not able to increase her revenue by changing her price because the demand for kayak rentals is unit-elastic. 
B)  should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic. 
C)  should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic. 
D)  should raise her price to earn the most revenue.

Question 8

If demand for a product is perfectly inelastic, a change in price will not change total revenue.

Accepted Answer

A) True 
 B)False

Question 9

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transportation is

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  infinity. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  infinity.

Question 10

Consider the following pairs of items: a. shampoo and conditioner
B. iPhones and earbuds
C. a laptop computer and a desktop computer
D. beef and pork
E. air-travel and weed killer
Which of the pairs listed will have a positive cross-price elasticity?

Accepted Answer

A)  a and b only 
B)  c and d only 
C)  e only 
D)  a, b, and c only 
A)  a and b only 
B)  c and d only 
C)  e only 
D)  a, b, and c only

Question 11

The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury.

Accepted Answer

A) True 
 B)False

Question 12

For a given demand curve, will there be a greater loss of economic efficiency from a binding price floor when supply is elastic or inelastic? Illustrate your answer with a demand and supply graph. In your graph you must show two supply curves, one elastic and the other inelastic.

Accepted Answer

@#IMG-DLM& See the figure above. SA is the elastic

Question 13

The price of wheat has fallen since 1950. Which of the following explains this price decline?

Accepted Answer

A)  The price elasticity of demand is less than 1 (in absolute value), and the income elasticity of demand for wheat is low. 
B)  The price elasticity of demand is greater than 1 (in absolute value), and the income elasticity of demand for wheat is low. 
C)  The price elasticity of demand is less than 1 (in absolute value), and wheat is an inferior good. 
D)  The price elasticity of demand is greater than 1 (in absolute value), and the income elasticity of demand for wheat is greater than 1. 
A)  The price elasticity of demand is less than 1 (in absolute value), and the income elasticity of demand for wheat is low. 
B)  The price elasticity of demand is greater than 1 (in absolute value), and the income elasticity of demand for wheat is low. 
C)  The price elasticity of demand is less than 1 (in absolute value), and wheat is an inferior good. 
D)  The price elasticity of demand is greater than 1 (in absolute value), and the income elasticity of demand for wheat is greater than 1.

Question 14

When the price of pistachio nuts is $7.50 per lb., the quantity demanded is 48 lbs. When the price of peaches is $9.00 per lb., the quantity demanded is 40 lbs. When the midpoint formula is used to measure the price elasticity of demand we can say that the demand for pistachio nuts is

Accepted Answer

A)  relatively, but not perfectly, elastic. 
B)  unit-elastic. 
C)  completely inelastic. 
D)  relatively, but not perfectly, inelastic. 
A)  relatively, but not perfectly, elastic. 
B)  unit-elastic. 
C)  completely inelastic. 
D)  relatively, but not perfectly, inelastic.

Question 15

Figure 6-3  
-Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.

Accepted Answer

A)  1.67 
B)  1.0 
C)  0.6 
D)  0.53 
A)  1.67 
B)  1.0 
C)  0.6 
D)  0.53

Question 16

Figure 6-12  
-Refer to Figure 6-12. Suppose the diagram shows the supply curves for a product in the short run and in the long run. Which supply curve represents supply in the short run and which curve represents supply in the long run?

Accepted Answer

A)  SB represents supply in the short run, and SA represents supply in the long run. 
B)  Either SA or SB could represent supply in the short run; in the long run the supply curve must be a vertical line. 
C)  Either SA or SB could represent supply in the long run; in the short run the supply curve must be a horizontal line. 
D)  SA represents supply in the short run, and SB represents supply in the long run. 
A)  SB represents supply in the short run, and SA represents supply in the long run. 
B)  Either SA or SB could represent supply in the short run; in the long run the supply curve must be a vertical line. 
C)  Either SA or SB could represent supply in the long run; in the short run the supply curve must be a horizontal line. 
D)  SA represents supply in the short run, and SB represents supply in the long run.

Question 17

Figure 6-8  
-Refer to Figure 6-8. Identify the two goods which are substitutes.

Accepted Answer

A)  Good X and Good Y 
B)  Good Y and Good Z 
C)  Good X and Good Z 
D)  It is not possible to distinguish any relationship among the goods. 
A)  Good X and Good Y 
B)  Good Y and Good Z 
C)  Good X and Good Z 
D)  It is not possible to distinguish any relationship among the goods.

Question 18

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

Accepted Answer

A)  substitutes. 
B)  complements. 
C)  inferior. 
D)  normal. 
A)  substitutes. 
B)  complements. 
C)  inferior. 
D)  normal.

Question 19

The slope of a demand curve is not used to measure the price elasticity of demand because

Accepted Answer

A)  the slope of a linear demand curve is not constant. 
B)  the slope of a line cannot have a negative value. 
C)  the measurement of slope is sensitive to the units chosen for price and quantity. 
D)  the slope of the demand curve does not tell us how much quantity changes as price changes. 
A)  the slope of a linear demand curve is not constant. 
B)  the slope of a line cannot have a negative value. 
C)  the measurement of slope is sensitive to the units chosen for price and quantity. 
D)  the slope of the demand curve does not tell us how much quantity changes as price changes.

Question 20

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is

Accepted Answer

A)  one that sells an inferior good. 
B)  one that sells a necessity good. 
C)  one that sells a luxury good. 
D)  one that sells a price inelastic good. 
A)  one that sells an inferior good. 
B)  one that sells a necessity good. 
C)  one that sells a luxury good. 
D)  one that sells a price inelastic good.

Exam 6: Elasticity: the Responsiveness of Demand and Supply

A demand curve that is horizontal indicates that the commodity

Assume that a 50 percent gasoline tax led to a large increase in its price and only a small decrease in the quantity of gasoline demanded. Economic analysis would lead one to conclude that

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. Which of the following statements accurately predicts the resulting decrease in price?

The most important determinant of the price elasticity of demand for a good is

If demand for a product is perfectly inelastic, a change in price will not change total revenue.

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transportation is

Consider the following pairs of items: a. shampoo and conditioner B. iPhones and earbuds C. a laptop computer and a desktop computer D. beef and pork E. air-travel and weed killer Which of the pairs listed will have a positive cross-price elasticity?

The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury.

For a given demand curve, will there be a greater loss of economic efficiency from a binding price floor when supply is elastic or inelastic? Illustrate your answer with a demand and supply graph. In your graph you must show two supply curves, one elastic and the other inelastic.

The price of wheat has fallen since 1950. Which of the following explains this price decline?

When the price of pistachio nuts is $7.50 per lb., the quantity demanded is 48 lbs. When the price of peaches is $9.00 per lb., the quantity demanded is 40 lbs. When the midpoint formula is used to measure the price elasticity of demand we can say that the demand for pistachio nuts is

Figure 6-3 -Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.

Figure 6-12 -Refer to Figure 6-12. Suppose the diagram shows the supply curves for a product in the short run and in the long run. Which supply curve represents supply in the short run and which curve represents supply in the long run?

Figure 6-8 -Refer to Figure 6-8. Identify the two goods which are substitutes.

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

The slope of a demand curve is not used to measure the price elasticity of demand because

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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