Question 1

Which of the following is a reason why the demand curve for an item would be more elastic?

Accepted Answer

A)  The item is a necessity. 
B)  People's incomes are very high relative to the cost of the item. 
C)  The item has many very good substitutes. 
D)  The cost of the item forms a very small part of consumers' budgets. 
A)  The item is a necessity. 
B)  People's incomes are very high relative to the cost of the item. 
C)  The item has many very good substitutes. 
D)  The cost of the item forms a very small part of consumers' budgets.

Question 2

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent, the quantity supplied of Good Y:

Accepted Answer

A)  rises by 7.5 percent. 
B)  rises by 133 percent. 
C)  falls by 7.5 percent. 
D)  falls by 133 percent. 
A)  rises by 7.5 percent. 
B)  rises by 133 percent. 
C)  falls by 7.5 percent. 
D)  falls by 133 percent.

Question 3

The elasticity of demand is always negative because:

Accepted Answer

A)  of the Law of Demand: when price goes up, quantity demanded goes down. 
B)  of the Law of Demand: when price goes down, quantity demanded goes down. 
C)  when demand increases, the price goes up. 
D)  when demand increases, the price goes down. 
A)  of the Law of Demand: when price goes up, quantity demanded goes down. 
B)  of the Law of Demand: when price goes down, quantity demanded goes down. 
C)  when demand increases, the price goes up. 
D)  when demand increases, the price goes down.

Question 4

If the elasticity of demand for oil is 0.5 and the elasticity of supply for oil is 0.3, then a 1 percent increase in the supply of oil would cause the price of oil to:

Accepted Answer

A)  increase by 1.25 percent. 
B)  increase by 2.50 percent. 
C)  decrease by 1.25 percent. 
D)  decrease by 2.50 percent. 
A)  increase by 1.25 percent. 
B)  increase by 2.50 percent. 
C)  decrease by 1.25 percent. 
D)  decrease by 2.50 percent.

Question 5

A 4 percent increase in the price of beer will cause a 1 percent decline in the quantity of beer demanded. The demand for beer is:

Accepted Answer

A)  elastic. 
B)  unitary elastic. 
C)  inelastic. 
D)  elastic at 4 (in absolute value). 
A)  elastic. 
B)  unitary elastic. 
C)  inelastic. 
D)  elastic at 4 (in absolute value).

Question 6

The demand for computer chips is inelastic so total revenue for the computer chip industry has increased with a decrease in the price of computer chips.

Accepted Answer

A) True 
 B)False

Question 7

The supply of a good tends to be more elastic if:

Accepted Answer

A)  a change in the price of the good causes only a small change in the quantity supplied. 
B)  the good is considered a necessary good. 
C)  production can be expanded without causing a big increase in the price of its inputs. 
D)  an increase in production has only a minimal impact on demand for the good. 
A)  a change in the price of the good causes only a small change in the quantity supplied. 
B)  the good is considered a necessary good. 
C)  production can be expanded without causing a big increase in the price of its inputs. 
D)  an increase in production has only a minimal impact on demand for the good.

Question 8

If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied:

Accepted Answer

A)  increases by 5 percent. 
B)  increases by 20 percent. 
C)  decreases by 5 percent. 
D)  decreases by 20 percent. 
A)  increases by 5 percent. 
B)  increases by 20 percent. 
C)  decreases by 5 percent. 
D)  decreases by 20 percent.

Question 9

The demand curve is elastic if an increase in price reduces the quantity demanded by only a little.

Accepted Answer

A) True 
 B)False

Question 10

A good with many substitutes will have a _____ curve that is relatively _____ elastic than a good with few substitutes.

Accepted Answer

A)  supply; less 
B)  supply; more 
C)  demand; less 
D)  demand; more 
A)  supply; less 
B)  supply; more 
C)  demand; less 
D)  demand; more

Question 11

If the price of a good increases from $100 to $110 and quantity supplied increases from 500 units to 530 units, the supply would be classified as elastic.

Accepted Answer

A) True 
 B)False

Question 12

Table: Demand Curves
 
In the table, which demand curve is most price elastic over the range of prices considered?

Accepted Answer

A)  demand curve A 
B)  demand curve B 
C)  demand curve C 
D)  demand curve D 
A)  demand curve A 
B)  demand curve B 
C)  demand curve C 
D)  demand curve D

Question 13

If the price elasticity of demand for cigarettes is -0.50 and the price of cigarettes increases 10 percent, the quantity demanded of cigarettes decreases by 50 percent.

Accepted Answer

A) True 
 B)False

Question 14

U.S. Highway 12 is part of a crucial two-lane artery from the seaports in Washington State to the tar sands in Canada. Extracting oil from the tar sands requires very large equipment and transporting it takes up both lanes of U.S. Highway12. In August of 2010, Idaho granted ConocoPhilips a road permit that allowed it to transport four oil-processing units. Without this permit, ConocoPhilips would have had to transport those units a much longer distance to get them to their destination. If permits for this highway were not allowed, how would that affect the elasticity of which curve in the market for oil?

Accepted Answer

A)  The supply curve would become more elastic. 
B)  The supply curve would become less elastic. 
C)  The demand curve would become more elastic. 
D)  The demand curve would become less elastic. 
A)  The supply curve would become more elastic. 
B)  The supply curve would become less elastic. 
C)  The demand curve would become more elastic. 
D)  The demand curve would become less elastic.

Question 15

If the government raises the minimum wage by 6 percent, the number of people employed falls by 2%. What is the elasticity of employment with respect to the minimum wage?

Accepted Answer

A)  -3.0 
B)  -0.33 
C)  -12 
D)  -0.0012 
A)  -3.0 
B)  -0.33 
C)  -12 
D)  -0.0012

Question 16

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a:

Accepted Answer

A)  3 percent decrease in quantity demanded. 
B)  5.33 percent increase in quantity demanded. 
C)  5.33 percent decrease in quantity demanded. 
D)  0.19 percent decrease in quantity demanded. 
A)  3 percent decrease in quantity demanded. 
B)  5.33 percent increase in quantity demanded. 
C)  5.33 percent decrease in quantity demanded. 
D)  0.19 percent decrease in quantity demanded.

Question 17

Consider the markets for prescription blood pressure medications and Kraft Macaroni and Cheese. Which of these goods do you think has the more elastic demand? Which is more inelastic? Explain your reasoning.

Accepted Answer

Prescription blood pressure medications

Question 18

Use the following to answer questions:
Figure: Gun Market  
-(Figure: Gun Market) In the gun market shown, the buyback program purchases ______ guns.

Accepted Answer

A)  1,670 
B)  3,730 
C)  6,000 
D)  2,060 
A)  1,670 
B)  3,730 
C)  6,000 
D)  2,060

Question 19

There are ______ substitutes for oil, so the elasticity of demand for oil is ______ elastic.

Accepted Answer

A)  few; very 
B)  few; not very 
C)  many; perfectly 
D)  many; very 
A)  few; very 
B)  few; not very 
C)  many; perfectly 
D)  many; very

Question 20

If the price elasticity of demand is 1 in absolute value, then a percentage drop in price will lead to an equal percentage increase in quantity demanded.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Applications

Which of the following is a reason why the demand curve for an item would be more elastic?

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent, the quantity supplied of Good Y:

The elasticity of demand is always negative because:

If the elasticity of demand for oil is 0.5 and the elasticity of supply for oil is 0.3, then a 1 percent increase in the supply of oil would cause the price of oil to:

A 4 percent increase in the price of beer will cause a 1 percent decline in the quantity of beer demanded. The demand for beer is:

The demand for computer chips is inelastic so total revenue for the computer chip industry has increased with a decrease in the price of computer chips.

The supply of a good tends to be more elastic if:

If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied:

The demand curve is elastic if an increase in price reduces the quantity demanded by only a little.

A good with many substitutes will have a _____ curve that is relatively _____ elastic than a good with few substitutes.

If the price of a good increases from $100 to $110 and quantity supplied increases from 500 units to 530 units, the supply would be classified as elastic.

Table: Demand Curves In the table, which demand curve is most price elastic over the range of prices considered?

If the price elasticity of demand for cigarettes is -0.50 and the price of cigarettes increases 10 percent, the quantity demanded of cigarettes decreases by 50 percent.

If the government raises the minimum wage by 6 percent, the number of people employed falls by 2%. What is the elasticity of employment with respect to the minimum wage?

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a:

Consider the markets for prescription blood pressure medications and Kraft Macaroni and Cheese. Which of these goods do you think has the more elastic demand? Which is more inelastic? Explain your reasoning.

Use the following to answer questions: Figure: Gun Market -(Figure: Gun Market) In the gun market shown, the buyback program purchases ______ guns.

There are ______ substitutes for oil, so the elasticity of demand for oil is ______ elastic.

If the price elasticity of demand is 1 in absolute value, then a percentage drop in price will lead to an equal percentage increase in quantity demanded.

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

A good with many substitutes will have a _ curve that is relatively _ elastic than a good with few substitutes.

There are substitutes for oil, so the elasticity of demand for oil is elastic.