Question 1

Table 6-1
  
-Refer to Table 6-1.Over what range of prices is the demand elastic?

Accepted Answer

A)  over the entire range of prices 
B)  between $14 and $16 
C)  between $8 and $16 
D)  between $2 and $8 
A)  over the entire range of prices 
B)  between $14 and $16 
C)  between $8 and $16 
D)  between $2 and $8

Question 2

As high gasoline prices persisted into the first part of 2011,consumers began driving less and using public transportation more.Over time,this caused the demand curve for gasoline to become ________ and the quantity of gasoline demanded to ________.

Accepted Answer

A)  more elastic, rise 
B)  more elastic; fall 
C)  less elastic; rise 
D)  less elastic; fall 
A)  more elastic, rise 
B)  more elastic; fall 
C)  less elastic; rise 
D)  less elastic; fall

Question 3

In September 2006,the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E.coli bacteria.Following this recommendation,the food industry looked at alternatives and many turned to arugula.One Chicago distributor claimed,"The sale of the stuff has gone through the roof." Based on this information,

Accepted Answer

A)  arugula is a normal good while raw spinach is an inferior good. 
B)  the cross-price elasticity between arugula and spinach is negative. 
C)  the cross-price elasticity between arugula and spinach is positive 
D)  the price elasticity of arugula is positive while the price elasticity of spinach falls to zero. 
A)  arugula is a normal good while raw spinach is an inferior good. 
B)  the cross-price elasticity between arugula and spinach is negative. 
C)  the cross-price elasticity between arugula and spinach is positive 
D)  the price elasticity of arugula is positive while the price elasticity of spinach falls to zero.

Question 4

When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?

Accepted Answer

Demand is perfectly elastic when quantit

Question 5

Figure 6-2  
-Refer to Figure 6-2.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?

Accepted Answer

A)  $50 
B)  $40 
C)  $30 
D)  $20 
A)  $50 
B)  $40 
C)  $30 
D)  $20

Question 6

Suppose the price of gasoline is $3.50 per gallon,the quantity of gasoline demanded is 150 billion gallons per year,the price elasticity of demand for gasoline is -0.06,and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon,which increases the price of gasoline by $0.75 per gallon.What is the new equilibrium quantity of gasoline demanded after the tax is imposed?

Accepted Answer

A)  109.72 billion gallons per year 
B)  127.25 billion gallons per year 
C)  148.27 billion gallons per year 
D)  161.61 billion gallons per year 
A)  109.72 billion gallons per year 
B)  127.25 billion gallons per year 
C)  148.27 billion gallons per year 
D)  161.61 billion gallons per year

Question 7

If the price elasticity of demand for canned soup is estimated at -1.62.What happens to sales revenue if the price of canned soup rises?

Accepted Answer

A)  It falls by 162 percent. 
B)  It rises by 1.62 percent. 
C)  It falls. 
D)  It rises. 
A)  It falls by 162 percent. 
B)  It rises by 1.62 percent. 
C)  It falls. 
D)  It rises.

Question 8

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units.Use the midpoint formula to calculate the price elasticity of supply.

Accepted Answer

A)  1.22 
B)  1.0 
C)  0.82 
D)  0.07 
A)  1.22 
B)  1.0 
C)  0.82 
D)  0.07

Question 9

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements about price elasticity of demand is false?

Accepted Answer

A)  The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope. 
B)  If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. 
C)  The value of the price elasticity of demand along a downward-sloping demand curve is always negative. 
D)  A linear downward-sloping demand curve has a varying price elasticity coefficient. 
A)  The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope. 
B)  If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. 
C)  The value of the price elasticity of demand along a downward-sloping demand curve is always negative. 
D)  A linear downward-sloping demand curve has a varying price elasticity coefficient.

Question 11

Figure 6-5  
-Refer to Figure 6-5.Identify the two goods which are complements.

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 12

Over longer periods of time,increases in oil prices provide firms with incentives to explore and recover oil.What does this indicate about the long run price elasticity of supply for oil?

Accepted Answer

A)  The elasticity coefficient is likely to be higher in the long run than in the short run. 
B)  The elasticity coefficient is likely to be lower in the long run than in the short run. 
C)  The elasticity coefficient approaches 0 in the long run as supplies are depleted. 
D)  The elasticity coefficient is unstable in the long run because oil supplies may be depleted. 
A)  The elasticity coefficient is likely to be higher in the long run than in the short run. 
B)  The elasticity coefficient is likely to be lower in the long run than in the short run. 
C)  The elasticity coefficient approaches 0 in the long run as supplies are depleted. 
D)  The elasticity coefficient is unstable in the long run because oil supplies may be depleted.

Question 13

Income elasticity measures

Accepted Answer

A)  how a good's quantity demanded responds to change in the goods price. 
B)  how a good's quantity demanded responds to change in the price of another good. 
C)  how a good's quantity demanded responds to change in buyers' incomes. 
D)  how a good's quantity demanded responds to producers' incomes. 
A)  how a good's quantity demanded responds to change in the goods price. 
B)  how a good's quantity demanded responds to change in the price of another good. 
C)  how a good's quantity demanded responds to change in buyers' incomes. 
D)  how a good's quantity demanded responds to producers' incomes.

Question 14

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.What does this mean?

Accepted Answer

A)  A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption. 
B)  A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption. 
C)  If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased. 
D)  The demand for orange juice is 6 times more than the demand for grapefruit juice. 
A)  A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption. 
B)  A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption. 
C)  If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased. 
D)  The demand for orange juice is 6 times more than the demand for grapefruit juice.

Question 16

Figure 6-4  
-Refer to Figure 6-4.Which of the following statements is true about the price elasticity of demand?

Accepted Answer

A)  The elasticity coefficient is constant along the demand curve. 
B)  The elastic portion of a straight-line downward sloping demand curve corresponds to the segment above the midpoint. 
C)  The inelastic portion of the demand curve corresponds to the segment above the midpoint. 
D)  At the midpoint of the demand curve, the elasticity coefficient is zero. 
A)  The elasticity coefficient is constant along the demand curve. 
B)  The elastic portion of a straight-line downward sloping demand curve corresponds to the segment above the midpoint. 
C)  The inelastic portion of the demand curve corresponds to the segment above the midpoint. 
D)  At the midpoint of the demand curve, the elasticity coefficient is zero.

Question 17

If the demand for a life-saving drug was perfectly inelastic and the price doubled,the quantity demanded would

Accepted Answer

A)  also double. 
B)  decrease by 50%. 
C)  be cut in half. 
D)  remain constant. 
A)  also double. 
B)  decrease by 50%. 
C)  be cut in half. 
D)  remain constant.

Question 18

At a price of $8 per dozen,Chuy sells 40 dozen homemade tamales per week.When he raised her price to $12 per dozen,he still sold 40 dozen per week.Based on this information,the demand for his tamales is

Accepted Answer

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

Question 19

Last year,Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year,his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant,Sefton's income elasticity of demand for potatoes is

Accepted Answer

A)  negative, so Sefton considers potatoes to be an inferior good. 
B)  positive, so Sefton considers potatoes to be an inferior good. 
C)  positive, so Sefton considers potatoes to be a normal good and a necessity. 
D)  negative, so Sefton considers potatoes to be a normal good. 
A)  negative, so Sefton considers potatoes to be an inferior good. 
B)  positive, so Sefton considers potatoes to be an inferior good. 
C)  positive, so Sefton considers potatoes to be a normal good and a necessity. 
D)  negative, so Sefton considers potatoes to be a normal good.

Question 20

Total revenue equals

Accepted Answer

A)  price per unit times quantity sold. 
B)  price per unit times quantity supplied. 
C)  price per unit times change in quantity sold. 
D)  change in price per unit times quantity sold. 
A)  price per unit times quantity sold. 
B)  price per unit times quantity supplied. 
C)  price per unit times change in quantity sold. 
D)  change in price per unit times quantity sold.

Exam 6: Elasticity: The Responsiveness of Demand and Supply

Table 6-1 -Refer to Table 6-1.Over what range of prices is the demand elastic?

As high gasoline prices persisted into the first part of 2011,consumers began driving less and using public transportation more.Over time,this caused the demand curve for gasoline to become ________ and the quantity of gasoline demanded to ________.

When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?

Figure 6-2 -Refer to Figure 6-2.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?

If the price elasticity of demand for canned soup is estimated at -1.62.What happens to sales revenue if the price of canned soup rises?

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units.Use the midpoint formula to calculate the price elasticity of supply.

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

Which of the following statements about price elasticity of demand is false?

Figure 6-5 -Refer to Figure 6-5.Identify the two goods which are complements.

Over longer periods of time,increases in oil prices provide firms with incentives to explore and recover oil.What does this indicate about the long run price elasticity of supply for oil?

Income elasticity measures

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.What does this mean?

Figure 6-4 -Refer to Figure 6-4.Which of the following statements is true about the price elasticity of demand?

If the demand for a life-saving drug was perfectly inelastic and the price doubled,the quantity demanded would

At a price of $8 per dozen,Chuy sells 40 dozen homemade tamales per week.When he raised her price to $12 per dozen,he still sold 40 dozen per week.Based on this information,the demand for his tamales is

Last year,Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year,his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant,Sefton's income elasticity of demand for potatoes is

Total revenue equals

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

Filters

As high gasoline prices persisted into the first part of 2011,consumers began driving less and using public transportation more.Over time,this caused the demand curve for gasoline to become and the quantity of gasoline demanded to .

Figure 6-2 -Refer to Figure 6-2.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of P_b?