Question 1

The long-run demand for oil ______ the short-run demand for oil.

Accepted Answer

A)  is more elastic than 
B)  is less elastic than 
C)  is equally elastic to 
D)  differs in elasticity in an indeterminate direction compared with 
A)  is more elastic than 
B)  is less elastic than 
C)  is equally elastic to 
D)  differs in elasticity in an indeterminate direction compared with

Question 2

Which of the following explains why local supply tends to be more elastic than global supply?

Accepted Answer

A)  As price increases in a certain locale, it is often costly to transport more goods to that particular area, and hence supply is more elastic. 
B)  Local suppliers are small in relation to the global market. 
C)  The statement is false; local supply tends to be less elastic than global supply. 
D)  As price increases in a certain locale, goods can be brought in from other areas, which is not possible on a global scale. 
A)  As price increases in a certain locale, it is often costly to transport more goods to that particular area, and hence supply is more elastic. 
B)  Local suppliers are small in relation to the global market. 
C)  The statement is false; local supply tends to be less elastic than global supply. 
D)  As price increases in a certain locale, goods can be brought in from other areas, which is not possible on a global scale.

Question 3

Use the following to answer questions:
Figure: Elasticity of Supply  
-(Figure: Elasticity of Supply) Refer to the figure. Which supply curve is the most elastic?

Accepted Answer

A)  S1 
B)  S2 
C)  S3 
D)  S4 
A)  S1 
B)  S2 
C)  S3 
D)  S4

Question 4

The case for drilling oil in ANWR is strengthened when the:

Accepted Answer

A)  price of oil is lower. 
B)  negative impact of drilling on the environment is greater. 
C)  price of oil is higher. 
D)  elasticity of demand for oil increases. 
A)  price of oil is lower. 
B)  negative impact of drilling on the environment is greater. 
C)  price of oil is higher. 
D)  elasticity of demand for oil increases.

Question 5

The elasticity of supply measures how sensitive the supply curve is to a change in price.

Accepted Answer

A) True 
 B)False

Question 6

The demand for oil would become less elastic if the price of oil increases by a significant amount for a long period of time.

Accepted Answer

A) True 
 B)False

Question 7

In Medieval Europe, there were two basic types of waterwheel. In an undershot wheel, water flows below the wheel to turn it. In an overshot wheel, water flows over the top of the wheel to turn it. Because the overshot wheel cooperates better with gravity, it is more efficient than an undershot wheel but it also requires a hill. Which wheel has a more inelastic supply curve and why?

Accepted Answer

A)  An undershot wheel, because Europe is much smaller than the rest of the world. 
B)  An undershot wheel, because it was less efficient than the overshot wheel. 
C)  An overshot wheel, because it was more efficient than the undershot wheel. 
D)  An overshot wheel, because it was more difficult to find locations to build them. 
A)  An undershot wheel, because Europe is much smaller than the rest of the world. 
B)  An undershot wheel, because it was less efficient than the overshot wheel. 
C)  An overshot wheel, because it was more efficient than the undershot wheel. 
D)  An overshot wheel, because it was more difficult to find locations to build them.

Question 8

In which situation would you expect supply to be less elastic?

Accepted Answer

A)  when looking at the long run 
B)  when looking at the global supply 
C)  when there are constant unit costs as the quantity produced increases 
D)  when looking at local supply 
A)  when looking at the long run 
B)  when looking at the global supply 
C)  when there are constant unit costs as the quantity produced increases 
D)  when looking at local supply

Question 9

If the price of Good Y falls from $10 to $8, and the quantity demanded of it rises from 1,000 units to 1,200 units, the price elasticity of demand expressed in absolute value is:

Accepted Answer

A)  1.00. 
B)  0.20. 
C)  0.82. 
D)  1.22. 
A)  1.00. 
B)  0.20. 
C)  0.82. 
D)  1.22.

Question 10

Use the following to answer questions:
Figure: Slave Redemption  
-(Figure: Slave Redemption) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. When slave redeemers enter the market, the price of slaves:

Accepted Answer

A)  increases to $40. 
B)  decreases to $17. 
C)  stays unchanged at $40. 
D)  exceeds $40. 
A)  increases to $40. 
B)  decreases to $17. 
C)  stays unchanged at $40. 
D)  exceeds $40.

Question 11

The flatter the demand curve, the less is the elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that along a given demand curve, price goes up by 10 percent, decreasing quantity demanded by 5 percent. The price elasticity of demand is:

Accepted Answer

A)  50. 
B)  –2. 
C)  –1/2. 
D)  impossible to calculate without specific prices and quantities. 
A)  50. 
B)  –2. 
C)  –1/2. 
D)  impossible to calculate without specific prices and quantities.

Question 13

Economists categorize price elasticity of demand greater than 1 as:

Accepted Answer

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

Question 14

Similar to the elasticity of demand, the elasticity of supply tends to become more elastic in the long run.

Accepted Answer

A) True 
 B)False

Question 15

When price increases and demand is elastic, revenue decreases.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is FALSE?

Accepted Answer

A)  A perfectly inelastic supply curve is vertical. 
B)  The supply curve is more elastic in the long run than in the short run. 
C)  Products that take a long time to produce, such as decades-aged Scotch whiskey, have supply curves that are less responsive to price changes. 
D)  The supply curve of oil is more inelastic in Texas than it is globally. 
A)  A perfectly inelastic supply curve is vertical. 
B)  The supply curve is more elastic in the long run than in the short run. 
C)  Products that take a long time to produce, such as decades-aged Scotch whiskey, have supply curves that are less responsive to price changes. 
D)  The supply curve of oil is more inelastic in Texas than it is globally.

Question 17

Demand for necessities is inelastic, while demand for luxuries is elastic.

Accepted Answer

A) True 
 B)False

Question 18

The demand curve for physician office visits is quite inelastic; therefore:

Accepted Answer

A)  a large increase in price causes quantity demanded to decrease by very little. 
B)  a large decrease in price causes quantity demanded to decrease by a lot. 
C)  a small increase in price causes quantity demanded to decrease by a lot. 
D)  a small decrease in price causes quantity demanded to decrease by very little. 
A)  a large increase in price causes quantity demanded to decrease by very little. 
B)  a large decrease in price causes quantity demanded to decrease by a lot. 
C)  a small increase in price causes quantity demanded to decrease by a lot. 
D)  a small decrease in price causes quantity demanded to decrease by very little.

Question 19

The price of wheat increases, but few people cut back on their consumption of bread because:

Accepted Answer

A)  the price of bread is a small portion of the budget, and thus the demand for bread is inelastic. 
B)  the price of bread is a large portion of the budget, and thus the demand for bread is elastic. 
C)  change in the price of wheat does not affect the price of bread. 
D)  None of the answers is correct. 
A)  the price of bread is a small portion of the budget, and thus the demand for bread is inelastic. 
B)  the price of bread is a large portion of the budget, and thus the demand for bread is elastic. 
C)  change in the price of wheat does not affect the price of bread. 
D)  None of the answers is correct.

Question 20

The elasticity of demand for a particular good is constant across individuals.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Applications

The long-run demand for oil ______ the short-run demand for oil.

Which of the following explains why local supply tends to be more elastic than global supply?

Use the following to answer questions: Figure: Elasticity of Supply -(Figure: Elasticity of Supply) Refer to the figure. Which supply curve is the most elastic?

The case for drilling oil in ANWR is strengthened when the:

The elasticity of supply measures how sensitive the supply curve is to a change in price.

The demand for oil would become less elastic if the price of oil increases by a significant amount for a long period of time.

In which situation would you expect supply to be less elastic?

If the price of Good Y falls from $10 to $8, and the quantity demanded of it rises from 1,000 units to 1,200 units, the price elasticity of demand expressed in absolute value is:

Use the following to answer questions: Figure: Slave Redemption -(Figure: Slave Redemption) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. When slave redeemers enter the market, the price of slaves:

The flatter the demand curve, the less is the elasticity of demand.

Suppose that along a given demand curve, price goes up by 10 percent, decreasing quantity demanded by 5 percent. The price elasticity of demand is:

Economists categorize price elasticity of demand greater than 1 as:

Similar to the elasticity of demand, the elasticity of supply tends to become more elastic in the long run.

When price increases and demand is elastic, revenue decreases.

Which of the following statements is FALSE?

Demand for necessities is inelastic, while demand for luxuries is elastic.

The demand curve for physician office visits is quite inelastic; therefore:

The price of wheat increases, but few people cut back on their consumption of bread because:

The elasticity of demand for a particular good is constant across individuals.

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