Question 1

A cross-price elasticity value that is negative will always indicate goods that are substitutes.

Accepted Answer

A) True 
 B)False

Question 2

The elasticity of supply measures:

Accepted Answer

A)  the percent change in quantity demanded divided by the percent change in price. 
B)  the percent change in quantity supplied. 
C)  the percent change in price. 
D)  how responsive the quantity supplied is to a change in price. 
A)  the percent change in quantity demanded divided by the percent change in price. 
B)  the percent change in quantity supplied. 
C)  the percent change in price. 
D)  how responsive the quantity supplied is to a change in price.

Question 3

Use the following to answer questions:
Figure: Slave Redemption and Elasticity  
-(Figure: Slave Redemption and Elasticity) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. How many new slaves are captured after the redemption program is installed?

Accepted Answer

A)  1,400 
B)  800 
C)  400 
D)  1,000 
A)  1,400 
B)  800 
C)  400 
D)  1,000

Question 4

All of the following would cause the supply curve to be more elastic EXCEPT:

Accepted Answer

A)  production of the good requires only a small share of the market for inputs. 
B)  the good is primarily for local supply. 
C)  the good is a manufactured good. 
D)  there is potential difficulty to increasing the production of the good at constant unit cost. 
A)  production of the good requires only a small share of the market for inputs. 
B)  the good is primarily for local supply. 
C)  the good is a manufactured good. 
D)  there is potential difficulty to increasing the production of the good at constant unit cost.

Question 5

A firm's revenue is price per unit times the quantity sold, so an increase in price decreases revenue if demand is elastic.

Accepted Answer

A) True 
 B)False

Question 6

If the price of ice cream changes by 30 percent and the quantity demanded changes by 75 percent, what is the absolute value of demand elasticity?

Accepted Answer

A)  2.5, so demand is inelastic 
B)  0.4, so demand is inelastic 
C)  0.4, so demand is elastic 
D)  2.5, so demand is elastic 
A)  2.5, so demand is inelastic 
B)  0.4, so demand is inelastic 
C)  0.4, so demand is elastic 
D)  2.5, so demand is elastic

Question 7

Why might the demand for massages be more elastic than the demand for chiropractic adjustments?

Accepted Answer

A)  Relative to massages, there are more substitutes for chiropractic adjustments. 
B)  People get massages in the short run and chiropractic adjustments in the long run. 
C)  Massages are much cheaper than chiropractic adjustments. 
D)  Massages tend to be luxuries and chiropractic adjustments tend to be necessities. 
A)  Relative to massages, there are more substitutes for chiropractic adjustments. 
B)  People get massages in the short run and chiropractic adjustments in the long run. 
C)  Massages are much cheaper than chiropractic adjustments. 
D)  Massages tend to be luxuries and chiropractic adjustments tend to be necessities.

Question 8

Drug prohibition is likely to increase drug-industry revenue because the demand for drugs is inelastic.

Accepted Answer

A) True 
 B)False

Question 9

When comparing two linear demand curves at a common point, the flatter curve is:

Accepted Answer

A)  more normal. 
B)  less responsive. 
C)  more elastic. 
D)  less elastic. 
A)  more normal. 
B)  less responsive. 
C)  more elastic. 
D)  less elastic.

Question 10

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

Accepted Answer

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

Question 11

Figure: Demand Elasticities   Refer to the figure. It shows two different demand curves. Based on the graph, which statement is TRUE?

Accepted Answer

A)  Elasticity of demand equals the slope of the curve so demand curve A is more elastic. 
B)  Elasticity of demand equals the slope of the curve so demand curve B is more elastic. 
C)  Since these two linear demand curves run through a common point we can say that at any given quantity, demand curve A is more elastic than curve B. 
D)  We cannot infer anything about elasticity from this diagram because slope does not equal elasticity. 
A)  Elasticity of demand equals the slope of the curve so demand curve A is more elastic. 
B)  Elasticity of demand equals the slope of the curve so demand curve B is more elastic. 
C)  Since these two linear demand curves run through a common point we can say that at any given quantity, demand curve A is more elastic than curve B. 
D)  We cannot infer anything about elasticity from this diagram because slope does not equal elasticity.

Question 12

If the cross-price elasticity of demand of two goods is negative, we can conclude that the two goods are:

Accepted Answer

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

Question 13

Assume a product has a rather elastic demand. If the producer of the good raises the price of the product, that producer's total revenue will decrease.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would NOT make elasticity of demand for a good more elastic?

Accepted Answer

A)  more substitutes 
B)  luxuries 
C)  large part of budget 
D)  less time 
A)  more substitutes 
B)  luxuries 
C)  large part of budget 
D)  less time

Question 15

Why do revenues increase when producers decrease the price of an elastically demanded good?

Accepted Answer

A)  Increased sales more than make up for the loss in revenue per unit sold. 
B)  Marginal costs decrease when the price of an elastically demanded good decreases. 
C)  Marginal benefits increase when the price of an elastically demanded good decreases. 
D)  They don't. Revenues increase when the price of an inelastic good decreases. 
A)  Increased sales more than make up for the loss in revenue per unit sold. 
B)  Marginal costs decrease when the price of an elastically demanded good decreases. 
C)  Marginal benefits increase when the price of an elastically demanded good decreases. 
D)  They don't. Revenues increase when the price of an inelastic good decreases.

Question 16

Figure: Elasticity and Total Revenue   Refer to the figure. If price falls from $60 to $40, total revenue goes ________, so demand is ________.

Accepted Answer

A)  down by $100; inelastic 
B)  down by $480; elastic 
C)  up by $360; inelastic 
D)  up by $120; elastic 
A)  down by $100; inelastic 
B)  down by $480; elastic 
C)  up by $360; inelastic 
D)  up by $120; elastic

Question 17

Operating along the inelastic portion of a linear demand curve, revenue rises with price.

Accepted Answer

A) True 
 B)False

Question 18

Consider a market that is described by the equations Qd = 10 - 0.5P, and Qs = -2 + 1.5P. What is the equilibrium price? What is the equilibrium quantity? If the demand curve shifts and the new demand equation is 8 - 0.5P, what are the new equilibrium price and the new equilibrium quantity? Calculate the price elasticity of supply. Is the supply curve between price and price 2 inelastic or elastic?

Accepted Answer

10 – 0.5P = –2+1.5P
12 = 2P
P = $6 and Q

Question 19

If the price of electronic readers falls 6 percent and quantity demanded rises by 9 percent, the elasticity of demand is ______ in absolute value, so demand is ______.

Accepted Answer

A)  3.0, elastic 
B)  15; inelastic 
C)  0.67; inelastic 
D)  1.5; elastic 
A)  3.0, elastic 
B)  15; inelastic 
C)  0.67; inelastic 
D)  1.5; elastic

Question 20

Which of the following probably has the most elastic demand?

Accepted Answer

A)  gasoline 
B)  prescription medications 
C)  toilet paper 
D)  McDonald's hamburgers 
A)  gasoline 
B)  prescription medications 
C)  toilet paper 
D)  McDonald's hamburgers

Exam 5: Elasticity and Its Applications

A cross-price elasticity value that is negative will always indicate goods that are substitutes.

The elasticity of supply measures:

Use the following to answer questions: Figure: Slave Redemption and Elasticity -(Figure: Slave Redemption and Elasticity) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. How many new slaves are captured after the redemption program is installed?

All of the following would cause the supply curve to be more elastic EXCEPT:

A firm's revenue is price per unit times the quantity sold, so an increase in price decreases revenue if demand is elastic.

If the price of ice cream changes by 30 percent and the quantity demanded changes by 75 percent, what is the absolute value of demand elasticity?

Why might the demand for massages be more elastic than the demand for chiropractic adjustments?

Drug prohibition is likely to increase drug-industry revenue because the demand for drugs is inelastic.

When comparing two linear demand curves at a common point, the flatter curve is:

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

Figure: Demand Elasticities Refer to the figure. It shows two different demand curves. Based on the graph, which statement is TRUE?

If the cross-price elasticity of demand of two goods is negative, we can conclude that the two goods are:

Assume a product has a rather elastic demand. If the producer of the good raises the price of the product, that producer's total revenue will decrease.

Which of the following would NOT make elasticity of demand for a good more elastic?

Why do revenues increase when producers decrease the price of an elastically demanded good?

Figure: Elasticity and Total Revenue Refer to the figure. If price falls from $60 to $40, total revenue goes ________, so demand is ________.

Operating along the inelastic portion of a linear demand curve, revenue rises with price.

If the price of electronic readers falls 6 percent and quantity demanded rises by 9 percent, the elasticity of demand is ______ in absolute value, so demand is ______.

Which of the following probably has the most elastic demand?

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

Figure: Elasticity and Total Revenue Refer to the figure. If price falls from $60 to $40, total revenue goes , so demand is .

If the price of electronic readers falls 6 percent and quantity demanded rises by 9 percent, the elasticity of demand is in absolute value, so demand is .