Question 1

Which good below might be expected to have the most inelastic demand curve?

Accepted Answer

A)  salt 
B)  women's blouses from Walmart 
C)  potato chips 
D)  Tylenol 
A)  salt 
B)  women's blouses from Walmart 
C)  potato chips 
D)  Tylenol

Question 2

In the elastic 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 3

Most people, when asked, cannot name the price of a canister of table salt at the grocery store within a factor of 25 percent. Which elasticity argument explains why?

Accepted Answer

A)  Table salt has many substitutes; demand is highly elastic. 
B)  Expenditures on table salt make up a tiny fraction of the average person's budget; demand is highly inelastic. 
C)  Most people make their salt consumption decisions in the short run. 
D)  People are loyal to their specific brands of salt. 
A)  Table salt has many substitutes; demand is highly elastic. 
B)  Expenditures on table salt make up a tiny fraction of the average person's budget; demand is highly inelastic. 
C)  Most people make their salt consumption decisions in the short run. 
D)  People are loyal to their specific brands of salt.

Question 4

Suppose that it is extremely inexpensive to acquire additional acres of land to grow bananas. We would then expect that the elasticity of supply of bananas is elastic.

Accepted Answer

A) True 
 B)False

Question 5

Since roughly 1950, total revenues in the farming sector have ________, and since 1980 total revenues in computer chips have ________.

Accepted Answer

A)  increased; decreased 
B)  decreased; decreased 
C)  increased; increased 
D)  decreased; increased 
A)  increased; decreased 
B)  decreased; decreased 
C)  increased; increased 
D)  decreased; increased

Question 6

The demand for oil is inelastic because there are:

Accepted Answer

A)  many complements for oil in its major use. 
B)  few complements for oil in its major use. 
C)  many substitutes for oil in its major use. 
D)  few substitutes for oil in its major use. 
A)  many complements for oil in its major use. 
B)  few complements for oil in its major use. 
C)  many substitutes for oil in its major use. 
D)  few substitutes for oil in its major use.

Question 7

The elasticity of demand measures:

Accepted Answer

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

Question 8

Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income elasticity of demand for steaks.

Accepted Answer

A)  -1 
B)  1 
C)  -12.5 
D)  12.5 
A)  -1 
B)  1 
C)  -12.5 
D)  12.5

Question 9

The demand curves for Good A and Good B are given by
Qa = 100 - Pa and Qb = 50 - 0.2Pb,
where Qa is the quantity demanded of Good A, Pa is the price of Good A, Qb is the quantity demanded of Good B, and Pb is the price of Good B.
a. Graph the demand curve for both goods.
b. Which demand curve is more elastic?
c. If the price of both goods increases from $50 to $60, what happens to total revenue in each market?
d. Use the midpoint formula to calculate the elasticity of demand for both goods resulting from the price change in part c.
e. What do your elasticity of demand calculations in part d tell you about the elasticity of demand for Goods A and B?

Accepted Answer

a.@#IMG-DLM&
b. The demand for Good A is more elas

Question 10

The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?

Accepted Answer

A)  1.00 
B)  0.82 
C)  1.22 
D)  12.2 
A)  1.00 
B)  0.82 
C)  1.22 
D)  12.2

Question 11

If two linear demand curves run through a common point, then at any given quantity the curve that is flatter is more elastic.

Accepted Answer

A) True 
 B)False

Question 12

With certain goods, such as high-quality Scotch whiskey, it is nearly impossible to increase output easily, suggesting a supply elasticity value greater than 1.

Accepted Answer

A) True 
 B)False

Question 13

Consumers today spend less on food than they did in 1950 because demand for food is highly elastic.

Accepted Answer

A) True 
 B)False

Question 14

When a good has fewer substitutes in consumption, is a small part of the consumer's budget, and a long time has passed, demand for such a good is inelastic.

Accepted Answer

A) True 
 B)False

Question 15

What happens to total revenue when demand is unit elastic and the price changes?

Accepted Answer

A)  Revenues increase when the price increases. 
B)  Revenues remain unchanged. 
C)  Revenues decrease when the price increases. 
D)  The change in revenues cannot be estimated. 
A)  Revenues increase when the price increases. 
B)  Revenues remain unchanged. 
C)  Revenues decrease when the price increases. 
D)  The change in revenues cannot be estimated.

Question 16

All of the following conditions would cause the demand curve for a good to be more elastic EXCEPT:

Accepted Answer

A)  a longer time horizon. 
B)  the good is considered a luxury good. 
C)  the price of the good falls. 
D)  the good has many substitutes. 
A)  a longer time horizon. 
B)  the good is considered a luxury good. 
C)  the price of the good falls. 
D)  the good has many substitutes.

Question 17

Figure: iPod Consumers   
A local electronics store sells iPods for $100 per unit. The manager who took a lesson from his economics course in college decides to offer a 20 percent discount to students who can present their current student ID at purchase. Given the demand curves for regular and student customers, answer the following questions.
a. What will be the total revenue for both groups of customers if the store offers the discount?
b. For which group of customers is the demand more elastic?
c. What is the elasticity of demand between the prices of $100 and $80 in the regular market?
d. What is the elasticity of demand between the prices of $100 and $80 in the student market?
e. If the manager increases the regular price of iPods to $120 and lowers the discount price to $70, how much could the store increase total revenues?

Accepted Answer

a. Total revenue from regular consumers

Question 18

The demand for cigarettes tends to be very elastic given the addictive nature of cigarettes.

Accepted Answer

A) True 
 B)False

Question 19

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 slaves are freed after the redemption program?

Accepted Answer

A)  1,000 
B)  400 
C)  600 
D)  1,400 
A)  1,000 
B)  400 
C)  600 
D)  1,400

Question 20

When demand is inelastic, total revenue goes down in proportion to a price increase.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Applications

Which good below might be expected to have the most inelastic demand curve?

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

Most people, when asked, cannot name the price of a canister of table salt at the grocery store within a factor of 25 percent. Which elasticity argument explains why?

Suppose that it is extremely inexpensive to acquire additional acres of land to grow bananas. We would then expect that the elasticity of supply of bananas is elastic.

Since roughly 1950, total revenues in the farming sector have ________, and since 1980 total revenues in computer chips have ________.

The demand for oil is inelastic because there are:

The elasticity of demand measures:

Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income elasticity of demand for steaks.

The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?

If two linear demand curves run through a common point, then at any given quantity the curve that is flatter is more elastic.

With certain goods, such as high-quality Scotch whiskey, it is nearly impossible to increase output easily, suggesting a supply elasticity value greater than 1.

Consumers today spend less on food than they did in 1950 because demand for food is highly elastic.

When a good has fewer substitutes in consumption, is a small part of the consumer's budget, and a long time has passed, demand for such a good is inelastic.

What happens to total revenue when demand is unit elastic and the price changes?

All of the following conditions would cause the demand curve for a good to be more elastic EXCEPT:

The demand for cigarettes tends to be very elastic given the addictive nature of cigarettes.

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 slaves are freed after the redemption program?

When demand is inelastic, total revenue goes down in proportion to a price increase.

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

Since roughly 1950, total revenues in the farming sector have , and since 1980 total revenues in computer chips have .