Question 1

If the price elasticity of supply for a window manufacturer is 1.5,

Accepted Answer

A)  a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied. 
B)  supply is considered to be inelastic. 
C)  the manufacturer is likely operating very near capacity. 
D)  All of the above are correct. 
A)  a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied. 
B)  supply is considered to be inelastic. 
C)  the manufacturer is likely operating very near capacity. 
D)  All of the above are correct.

Question 2

Which of the following statements is valid when supply is perfectly elastic at a price of $4?

Accepted Answer

A)  The elasticity of supply approaches infinity. 
B)  The supply curve is vertical. 
C)  At a price below $4, quantity supplied is infinite. 
D)  At a price above $4, quantity supplied is zero. 
A)  The elasticity of supply approaches infinity. 
B)  The supply curve is vertical. 
C)  At a price below $4, quantity supplied is infinite. 
D)  At a price above $4, quantity supplied is zero.

Question 3

Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max

Accepted Answer

A)  considers athletic shoes to be necessities. 
B)  considers athletic shoes to be inferior goods. 
C)  considers athletic shoes to be normal goods. 
D)  has a low price elasticity of demand for athletic shoes. 
A)  considers athletic shoes to be necessities. 
B)  considers athletic shoes to be inferior goods. 
C)  considers athletic shoes to be normal goods. 
D)  has a low price elasticity of demand for athletic shoes.

Question 4

A good will have a more elastic demand, the

Accepted Answer

A)  greater the availability of close substitutes. 
B)  more broad the definition of the market. 
C)  shorter the period of time. 
D)  more it is regarded as a necessity. 
A)  greater the availability of close substitutes. 
B)  more broad the definition of the market. 
C)  shorter the period of time. 
D)  more it is regarded as a necessity.

Question 5

Which of the following is likely to have the most price inelastic demand?

Accepted Answer

A)  white chocolate chip with macadamia nut cookies 
B)  Mrs. Field's chocolate chip cookies 
C)  milk chocolate chip cookies 
D)  cookies 
A)  white chocolate chip with macadamia nut cookies 
B)  Mrs. Field's chocolate chip cookies 
C)  milk chocolate chip cookies 
D)  cookies

Question 6

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1. What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs?

Accepted Answer

A)  Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes. 
B)  Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements. 
C)  Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes. 
D)  Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements. 
A)  Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes. 
B)  Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements. 
C)  Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes. 
D)  Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements.

Question 7

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

Accepted Answer

A)  Supply curves are steeper over long periods of time than over short periods of time. 
B)  Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. 
C)  The number of firms in a market tends to be more variable over long periods of time than over short periods of time. 
D)  Firms prefer to change their prices in the short run rather than in the long run. 
A)  Supply curves are steeper over long periods of time than over short periods of time. 
B)  Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. 
C)  The number of firms in a market tends to be more variable over long periods of time than over short periods of time. 
D)  Firms prefer to change their prices in the short run rather than in the long run.

Question 8

How does total revenue change as one moves downward and to the right along a linear demand curve?

Accepted Answer

A)  It always increases. 
B)  It always decreases. 
C)  It first increases, then decreases. 
D)  It is unaffected by a movement along the demand curve. 
A)  It always increases. 
B)  It always decreases. 
C)  It first increases, then decreases. 
D)  It is unaffected by a movement along the demand curve.

Question 9

The case of perfectly elastic demand is illustrated by a demand curve that is

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  downward-sloping but relatively steep. 
D)  downward-sloping but relatively flat. 
A)  vertical. 
B)  horizontal. 
C)  downward-sloping but relatively steep. 
D)  downward-sloping but relatively flat.

Question 10

The measure of how willing consumers are to buy less of a good as its price rises is called

Accepted Answer

price elas

Question 11

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 12

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

Accepted Answer

A) True 
 B)False

Question 13

Table 5-1
  
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Accepted Answer

A)  A is pens and B is pencils. 
B)  A is a Snickers bar and B is a Milky Way bar. 
C)  A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler. 
D)  A is a bottle of water demanded by a tourist in a desert and B is a bottle of water demanded by a tourist in a rain forest. 
A)  A is pens and B is pencils. 
B)  A is a Snickers bar and B is a Milky Way bar. 
C)  A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler. 
D)  A is a bottle of water demanded by a tourist in a desert and B is a bottle of water demanded by a tourist in a rain forest.

Question 14

A perfectly inelastic demand implies that buyers

Accepted Answer

A)  decrease their purchases when the price rises. 
B)  purchase the same amount as before when the price rises or falls. 
C)  increase their purchases only slightly when the price falls. 
D)  respond substantially to an increase in price. 
A)  decrease their purchases when the price rises. 
B)  purchase the same amount as before when the price rises or falls. 
C)  increase their purchases only slightly when the price falls. 
D)  respond substantially to an increase in price.

Question 15

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

Accepted Answer

A)  1.14. 
B)  1. 
C)  0.25. 
D)  0.13. 
A)  1.14. 
B)  1. 
C)  0.25. 
D)  0.13.

Question 16

If the demand curve is linear and downward sloping, which of the following statements is not correct?

Accepted Answer

A)  Demand is more elastic on the lower part of the demand curve than on the upper part. 
B)  Different pairs of points on the demand curve can result in different values of the price elasticity of demand. 
C)  Different pairs of points on the demand curve result in identical values of the slope of the demand curve. 
D)  Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total revenue. 
A)  Demand is more elastic on the lower part of the demand curve than on the upper part. 
B)  Different pairs of points on the demand curve can result in different values of the price elasticity of demand. 
C)  Different pairs of points on the demand curve result in identical values of the slope of the demand curve. 
D)  Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total revenue.

Question 17

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price inelastic demand?

Accepted Answer

The answer of Suppose that good X has few close...

Question 18

Figure 5-4  
-Refer to Figure 5-4. The section of the demand curve from A to B represents the

Accepted Answer

A)  elastic section of the demand curve. 
B)  inelastic section of the demand curve. 
C)  unit elastic section of the demand curve. 
D)  perfectly elastic section of the demand curve. 
A)  elastic section of the demand curve. 
B)  inelastic section of the demand curve. 
C)  unit elastic section of the demand curve. 
D)  perfectly elastic section of the demand curve.

Question 19

For which pairs of goods is the cross-price elasticity most likely to be positive?

Accepted Answer

A)  peanut butter and jelly 
B)  bicycle frames and bicycle tires 
C)  pens and pencils 
D)  college textbooks and iPods 
A)  peanut butter and jelly 
B)  bicycle frames and bicycle tires 
C)  pens and pencils 
D)  college textbooks and iPods

Question 20

Which of the following is likely to have the most price elastic demand?

Accepted Answer

A)  scissors 
B)  fruit 
C)  music downloads 
D)  toothpaste 
A)  scissors 
B)  fruit 
C)  music downloads 
D)  toothpaste

Exam 5: Elasticity and Its Application

If the price elasticity of supply for a window manufacturer is 1.5,

Which of the following statements is valid when supply is perfectly elastic at a price of $4?

Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max

A good will have a more elastic demand, the

Which of the following is likely to have the most price inelastic demand?

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

How does total revenue change as one moves downward and to the right along a linear demand curve?

The case of perfectly elastic demand is illustrated by a demand curve that is

The measure of how willing consumers are to buy less of a good as its price rises is called

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

Table 5-1 -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

A perfectly inelastic demand implies that buyers

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

If the demand curve is linear and downward sloping, which of the following statements is not correct?

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price inelastic demand?

Figure 5-4 -Refer to Figure 5-4. The section of the demand curve from A to B represents the

For which pairs of goods is the cross-price elasticity most likely to be positive?

Which of the following is likely to have the most price elastic demand?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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