Question 1

The war on drugs has caused the price of drugs to increase and this has decreased the total revenue of illegal drug producers.

Accepted Answer

A) True 
 B)False

Question 2

The elasticity of demand for oil is about 0.5, and the elasticity of supply is about 0.3. If the Arctic National Wildlife Refuge (ANWR) were drilled and the world supply of oil increased by 3 percent, what is the estimated percent change in the world price of oil?

Accepted Answer

A)  -1.25 percent 
B)  -2.50 percent 
C)  -3.75 percent 
D)  Unknown 
A)  -1.25 percent 
B)  -2.50 percent 
C)  -3.75 percent 
D)  Unknown

Question 3

The supply of ancient Egyptian papyrus manuscripts is probably:

Accepted Answer

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

Question 4

If Major League Baseball ticket prices rise by 15 percent, the number of tickets sold falls by 5 percent. The elasticity of demand is:

Accepted Answer

A)  -3. 
B)  -1/3. 
C)  -7.5. 
D)  -0.75. 
A)  -3. 
B)  -1/3. 
C)  -7.5. 
D)  -0.75.

Question 5

The elasticity of demand measures how responsive consumers are to price changes. For example, when a small decrease in price leads to a large increase in quantity demanded, demand is considered elastic.

Accepted Answer

A) True 
 B)False

Question 6

Over time, the demand for most goods becomes ______ elastic since we are able to ______.

Accepted Answer

A)  more; develop more/better substitutes 
B)  less; develop more/better substitutes 
C)  more; produce more of the good or service 
D)  less; produce more of the good or service 
A)  more; develop more/better substitutes 
B)  less; develop more/better substitutes 
C)  more; produce more of the good or service 
D)  less; produce more of the good or service

Question 7

Gun buyback programs will be less effective if the:

Accepted Answer

A)  supply of guns is more elastic. 
B)  supply of guns is more inelastic. 
C)  demand for guns is more elastic. 
D)  demand for guns is more inelastic. 
A)  supply of guns is more elastic. 
B)  supply of guns is more inelastic. 
C)  demand for guns is more elastic. 
D)  demand for guns is more inelastic.

Question 8

Unlike demand, supply is less elastic in the long run.

Accepted Answer

A) True 
 B)False

Question 9

If the demand for heroin is inelastic and heroin users get the money to pay for heroin by committing crimes, policymakers who want to reduce crime should:

Accepted Answer

A)  make it harder to find heroin. 
B)  tax heroin. 
C)  try to lower the price of heroin. 
D)  try to raise the price of heroin. 
A)  make it harder to find heroin. 
B)  tax heroin. 
C)  try to lower the price of heroin. 
D)  try to raise the price of heroin.

Question 10

The elasticity of demand measures how responsive the price of a good is to a change in the demand.

Accepted Answer

A) True 
 B)False

Question 11

Assume a product has an inelastic 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 12

Much of the world's supply of palm oil (which is used in a variety of products including chocolate and soap) is grown in Indonesia on farms where rain forest once stood. To this day, farmers deforest the local jungle to plant more oil palms (Elaeis guineensis). Suppose an environmental group decided to combat this deforestation by buying local rain forest areas. Would this strategy be more or less successful than slave redemption programs and why?

Accepted Answer

A)  Less successful, because farmers would respond by creating more rain forest. 
B)  More successful, because it is more likely to drastically increase the price of rain forests. 
C)  Less successful, because rain forest land has a perfectly inelastic supply curve. 
D)  More successful, because it is much more likely to discourage palm oil consumption. 
A)  Less successful, because farmers would respond by creating more rain forest. 
B)  More successful, because it is more likely to drastically increase the price of rain forests. 
C)  Less successful, because rain forest land has a perfectly inelastic supply curve. 
D)  More successful, because it is much more likely to discourage palm oil consumption.

Question 13

When the supply curve in the Sudanese slave trade is perfectly ________, every slave bought by the redeemers results in/is ________ held in captivity.

Accepted Answer

A)  inelastic; more slaves 
B)  inelastic; one less slave 
C)  inelastic; redeemed at a lower price than expected 
D)  elastic; redeemed at a higher price than expected 
A)  inelastic; more slaves 
B)  inelastic; one less slave 
C)  inelastic; redeemed at a lower price than expected 
D)  elastic; redeemed at a higher price than expected

Question 14

Why is the supply curve for oil rather inelastic?

Accepted Answer

A)  There are not many widely available good substitutes for oil. 
B)  To increase the production of oil would require a very significant outlay in terms of costs of exploration and drilling. 
C)  The world supply of oil is decreasing. 
D)  The supply curve for oil is always perfectly inelastic. 
A)  There are not many widely available good substitutes for oil. 
B)  To increase the production of oil would require a very significant outlay in terms of costs of exploration and drilling. 
C)  The world supply of oil is decreasing. 
D)  The supply curve for oil is always perfectly inelastic.

Question 15

If the price of a good increases from $200 to $250 and quantity supplied increases from 200 units to 400 units, the supply would be classified as elastic.

Accepted Answer

A) True 
 B)False

Question 16

Elasticity of demand is the percent change in quantity demanded divided by the percent change in price.

Accepted Answer

A) True 
 B)False

Question 17

If the supply of a good is very elastic, then any increase in demand for the good will have a:

Accepted Answer

A)  big impact on the price of the good. 
B)  very small impact on the price of the good. 
C)  very small impact on the equilibrium quantity exchanged. 
D)  limiting effect on the quantity sold. 
A)  big impact on the price of the good. 
B)  very small impact on the price of the good. 
C)  very small impact on the equilibrium quantity exchanged. 
D)  limiting effect on the quantity sold.

Question 18

The demand for Michelin tires is ______ elastic than the demand for tires, and the demand for chocolate is ______ elastic than the demand for Godiva chocolate.

Accepted Answer

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

Question 19

Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity?

Accepted Answer

A)  2 
B)  4 
C)  -0.5 
D)  -2 
A)  2 
B)  4 
C)  -0.5 
D)  -2

Question 20

Government gun buyback programs designed to take guns off the street cause the demand for low-quality guns to increase.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Applications

The war on drugs has caused the price of drugs to increase and this has decreased the total revenue of illegal drug producers.

The elasticity of demand for oil is about 0.5, and the elasticity of supply is about 0.3. If the Arctic National Wildlife Refuge (ANWR) were drilled and the world supply of oil increased by 3 percent, what is the estimated percent change in the world price of oil?

The supply of ancient Egyptian papyrus manuscripts is probably:

If Major League Baseball ticket prices rise by 15 percent, the number of tickets sold falls by 5 percent. The elasticity of demand is:

The elasticity of demand measures how responsive consumers are to price changes. For example, when a small decrease in price leads to a large increase in quantity demanded, demand is considered elastic.

Over time, the demand for most goods becomes ______ elastic since we are able to ______.

Gun buyback programs will be less effective if the:

Unlike demand, supply is less elastic in the long run.

If the demand for heroin is inelastic and heroin users get the money to pay for heroin by committing crimes, policymakers who want to reduce crime should:

The elasticity of demand measures how responsive the price of a good is to a change in the demand.

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

When the supply curve in the Sudanese slave trade is perfectly ________, every slave bought by the redeemers results in/is ________ held in captivity.

Why is the supply curve for oil rather inelastic?

If the price of a good increases from $200 to $250 and quantity supplied increases from 200 units to 400 units, the supply would be classified as elastic.

Elasticity of demand is the percent change in quantity demanded divided by the percent change in price.

If the supply of a good is very elastic, then any increase in demand for the good will have a:

The demand for Michelin tires is ______ elastic than the demand for tires, and the demand for chocolate is ______ elastic than the demand for Godiva chocolate.

Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity?

Government gun buyback programs designed to take guns off the street cause the demand for low-quality guns to 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

Over time, the demand for most goods becomes elastic since we are able to .

When the supply curve in the Sudanese slave trade is perfectly , every slave bought by the redeemers results in/is held in captivity.

The demand for Michelin tires is elastic than the demand for tires, and the demand for chocolate is elastic than the demand for Godiva chocolate.