Question 1

When production of a good can be expanded without significantly increasing the overall demand for its inputs:

Accepted Answer

A)  supply for this good will tend to be more inelastic. 
B)  supply for this good will tend to be more elastic. 
C)  price for the good will be constant. 
D)  the elasticity of supply of the product will equal the elasticity of supply of the inputs. 
A)  supply for this good will tend to be more inelastic. 
B)  supply for this good will tend to be more elastic. 
C)  price for the good will be constant. 
D)  the elasticity of supply of the product will equal the elasticity of supply of the inputs.

Question 2

Table: Elasticities of Good X
 
Refer to the table. From the information in the table, what can you say about good X? In particular, is the demand for Good X rather elastic or inelastic? What does this imply about the number of substitutes that exist for Good X? Does Good Y appear to be a substitute for Good X? Does Good X appear to be a normal or inferior good? Finally, is the elasticity of supply for Good X relatively elastic or inelastic?

Accepted Answer

Good X has a rather elastic demand curve

Question 3

If the price elasticity of demand is 0.5, then when the price of Good X rises by 20 percent:

Accepted Answer

A)  the quantity demanded of it rises by 40 percent. 
B)  the quantity demanded of it rises by 10 percent. 
C)  the quantity demanded of it falls by 10 percent. 
D)  the quantity demanded of it falls by 40 percent. 
A)  the quantity demanded of it rises by 40 percent. 
B)  the quantity demanded of it rises by 10 percent. 
C)  the quantity demanded of it falls by 10 percent. 
D)  the quantity demanded of it falls by 40 percent.

Question 4

The supply of guitars in Alabama is more elastic than the supply of guitars in the United States.

Accepted Answer

A) True 
 B)False

Question 5

Why is the demand curve for oil rather inelastic?

Accepted Answer

A)  There are few widely available good substitutes for oil. 
B)  To increase the production of oil requires a significant outlay of exploration and drilling costs. 
C)  The world supply of oil is low relative to demand. 
D)  The demand curve for oil is always perfectly inelastic. 
A)  There are few widely available good substitutes for oil. 
B)  To increase the production of oil requires a significant outlay of exploration and drilling costs. 
C)  The world supply of oil is low relative to demand. 
D)  The demand curve for oil is always perfectly inelastic.

Question 6

In the market for backpacks, 100 backpacks are sold at $40 each. Then a fall in wages results in sales of 500 backpacks at a price of $20 each. Using the midpoint method, what is the absolute value of the elasticity of demand for backpacks?

Accepted Answer

A)  0.125 
B)  0.5 
C)  2 
D)  8 
A)  0.125 
B)  0.5 
C)  2 
D)  8

Question 7

Table: Price Elasticities
 
Refer to the table. Use the information provided to predict the following:
a. The percent change in price (P) when there is a 2 percent rise in the quantity demanded for Good X.
b. The percent change in price (P) when there is a 5 percent fall in the quantity demanded for Good Y.
c. The percent change in price (P) when there is a 5 percent fall in the quantity supplied of Good X.

Accepted Answer

a. 2/(1.5) = 1.33% r

Question 8

Economic theory suggests that gun buyback programs:

Accepted Answer

A)  are effective in reducing the number of guns on city streets. 
B)  do not reduce the number of guns on city streets. 
C)  are most effective if the supply curve of guns is perfectly elastic. 
D)  reduce the demand for new and better-functioning guns. 
A)  are effective in reducing the number of guns on city streets. 
B)  do not reduce the number of guns on city streets. 
C)  are most effective if the supply curve of guns is perfectly elastic. 
D)  reduce the demand for new and better-functioning guns.

Question 9

In the inelastic portion of a linear demand curve, firm revenue ______ when price falls.

Accepted Answer

A)  increases 
B)  decreases 
C)  remains the same 
D)  changes in an indeterminate direction 
A)  increases 
B)  decreases 
C)  remains the same 
D)  changes in an indeterminate direction

Question 10

A good with an absolute value of the price elasticity of demand of 1.0 is classified as:

Accepted Answer

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

Question 11

If the price elasticity of demand is 2 in absolute value, then when the price of Good X rises by 25 percent:

Accepted Answer

A)  the quantity demanded of it rises by 50 percent. 
B)  the quantity demanded of it falls by 50 percent. 
C)  the quantity demanded of it rises by 12.5 percent. 
D)  the quantity demanded of it falls by 12.5 percent. 
A)  the quantity demanded of it rises by 50 percent. 
B)  the quantity demanded of it falls by 50 percent. 
C)  the quantity demanded of it rises by 12.5 percent. 
D)  the quantity demanded of it falls by 12.5 percent.

Question 12

Compared to the 1980s, the price of computer chips is much lower today and revenues from computer chips are _____ because demand is _____.

Accepted Answer

A)  higher; elastic 
B)  lower; inelastic 
C)  approximately unchanged; unit elastic 
D)  higher; inelastic 
A)  higher; elastic 
B)  lower; inelastic 
C)  approximately unchanged; unit elastic 
D)  higher; inelastic

Question 13

If the demand for a good is unit elastic, then:

Accepted Answer

A)  revenues increase when the price goes up. 
B)  revenues decrease when the price goes up. 
C)  any change in price is matched by an equal and opposite percentage change in quantity, so revenues stay the same. 
D)  revenues decrease regardless of the direction of the price change. 
A)  revenues increase when the price goes up. 
B)  revenues decrease when the price goes up. 
C)  any change in price is matched by an equal and opposite percentage change in quantity, so revenues stay the same. 
D)  revenues decrease regardless of the direction of the price change.

Question 14

If the price of a good falls from $20 to $10 and quantity demanded rises from 400 to 500, the demand would be classified as inelastic.

Accepted Answer

A) True 
 B)False

Question 15

The supply of U.S. housing is more inelastic if most of the timber in the United States goes to housing construction.

Accepted Answer

A) True 
 B)False

Question 16

The availability of fewer substitutes for a good means its demand curve:

Accepted Answer

A)  becomes less elastic. 
B)  becomes more elastic. 
C)  maintains the same elasticity. 
D)  changes elasticity in an indeterminate direction. 
A)  becomes less elastic. 
B)  becomes more elastic. 
C)  maintains the same elasticity. 
D)  changes elasticity in an indeterminate direction.

Question 17

Istanbul's Dolmabaçe Palace, built near the end of the Ottoman Empire, rests on a former garden that was created in the eighteenth century at great expense by filling in a bay. (Dolmabaçe means "filled-in garden" in Turkish.) What does the Dolmabaçe Palace teach us about the elasticity of supply of land?

Accepted Answer

A)  It is perfectly elastic. 
B)  It is not perfectly elastic, but close to it. 
C)  It is perfectly inelastic. 
D)  It is not perfectly inelastic, but close to it. 
A)  It is perfectly elastic. 
B)  It is not perfectly elastic, but close to it. 
C)  It is perfectly inelastic. 
D)  It is not perfectly inelastic, but close to it.

Question 18

If the elasticity of demand for cigarettes is 0.75 and the elasticity of supply for cigarettes is 1.25, then a 5 percent decrease in the demand for cigarettes would cause the price of cigarettes to:

Accepted Answer

A)  increase by 2.5 percent. 
B)  increase by 5 percent. 
C)  decrease by 2.5 percent. 
D)  decrease by 5 percent. 
A)  increase by 2.5 percent. 
B)  increase by 5 percent. 
C)  decrease by 2.5 percent. 
D)  decrease by 5 percent.

Question 19

Explain the change in tactics Nobel Prize-winning economist Gary Becker suggests concerning the method of fighting the war on drugs. What is so attractive about this alternative?

Accepted Answer

Becker suggests that a tax could be set

Question 20

Figure: Supply Elasticity   Refer to the figure. It shows two different supply curves. Based on the graph, which statement is TRUE?

Accepted Answer

A)  The same price increase would cause a bigger increase in the quantity supplied along curve A. 
B)  The same price increase would cause a bigger increase in the quantity supplied along curve B. 
C)  Curve A reflects a less responsive supply. 
D)  If comparing responsiveness from a common point, like the intersection, we can conclude that supply curve B is more elastic. 
A)  The same price increase would cause a bigger increase in the quantity supplied along curve A. 
B)  The same price increase would cause a bigger increase in the quantity supplied along curve B. 
C)  Curve A reflects a less responsive supply. 
D)  If comparing responsiveness from a common point, like the intersection, we can conclude that supply curve B is more elastic.

Exam 5: Elasticity and Its Applications

When production of a good can be expanded without significantly increasing the overall demand for its inputs:

If the price elasticity of demand is 0.5, then when the price of Good X rises by 20 percent:

The supply of guitars in Alabama is more elastic than the supply of guitars in the United States.

Why is the demand curve for oil rather inelastic?

In the market for backpacks, 100 backpacks are sold at $40 each. Then a fall in wages results in sales of 500 backpacks at a price of $20 each. Using the midpoint method, what is the absolute value of the elasticity of demand for backpacks?

Economic theory suggests that gun buyback programs:

In the inelastic portion of a linear demand curve, firm revenue ______ when price falls.

A good with an absolute value of the price elasticity of demand of 1.0 is classified as:

If the price elasticity of demand is 2 in absolute value, then when the price of Good X rises by 25 percent:

Compared to the 1980s, the price of computer chips is much lower today and revenues from computer chips are _____ because demand is _____.

If the demand for a good is unit elastic, then:

If the price of a good falls from $20 to $10 and quantity demanded rises from 400 to 500, the demand would be classified as inelastic.

The supply of U.S. housing is more inelastic if most of the timber in the United States goes to housing construction.

The availability of fewer substitutes for a good means its demand curve:

If the elasticity of demand for cigarettes is 0.75 and the elasticity of supply for cigarettes is 1.25, then a 5 percent decrease in the demand for cigarettes would cause the price of cigarettes to:

Explain the change in tactics Nobel Prize-winning economist Gary Becker suggests concerning the method of fighting the war on drugs. What is so attractive about this alternative?

Figure: Supply Elasticity Refer to the figure. It shows two different supply curves. Based on the graph, which statement is TRUE?

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

Compared to the 1980s, the price of computer chips is much lower today and revenues from computer chips are _ because demand is _.