Question 1

Cross-price elasticity is used to determine whether goods are inferior or normal goods.

Accepted Answer

A) True 
 B)False

Question 2

If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is 2.

Accepted Answer

A) True 
 B)False

Question 3

Figure 5-11   A: The Elasticity of Demand
-Refer to Figure 5-11. If price increases from $10 to $20, total revenue will

Accepted Answer

A)  increase by $120, so demand must be inelastic in this price range. 
B)  increase by $320, so demand must be inelastic in this price range. 
C)  decrease by $120, so demand must be elastic in this price range. 
D)  decrease by $320, so demand must be elastic in this price range. 
A)  increase by $120, so demand must be inelastic in this price range. 
B)  increase by $320, so demand must be inelastic in this price range. 
C)  decrease by $120, so demand must be elastic in this price range. 
D)  decrease by $320, so demand must be elastic in this price range.

Question 4

Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are

Accepted Answer

A)  substitutes, and have a cross-price elasticity of 0.60. 
B)  complements, and have a cross-price elasticity of -0.60. 
C)  substitutes, and have a cross-price elasticity of 1.67. 
D)  complements, and have a cross-price elasticity of -1.67. 
A)  substitutes, and have a cross-price elasticity of 0.60. 
B)  complements, and have a cross-price elasticity of -0.60. 
C)  substitutes, and have a cross-price elasticity of 1.67. 
D)  complements, and have a cross-price elasticity of -1.67.

Question 5

What is the price elasticity of demand at any point on a perfectly elastic demand curve?

Accepted Answer

The price

Question 6

Table 5-11
  
-Refer to Table 5-11. Which scenario describes the market for oil in the long run?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 7

A linear, downward-sloping demand curve has a constant elasticity but a changing slope.

Accepted Answer

A) True 
 B)False

Question 8

An advance in farm technology that results in an increased market supply is

Accepted Answer

A)  good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for food. 
B)  bad for farmers because total revenue will fall but good for consumers because prices for food will fall. 
C)  good for farmers because it raises prices for their products and also good for consumers because more output is available for consumption. 
D)  bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total revenue. 
A)  good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for food. 
B)  bad for farmers because total revenue will fall but good for consumers because prices for food will fall. 
C)  good for farmers because it raises prices for their products and also good for consumers because more output is available for consumption. 
D)  bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total revenue.

Question 9

If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of

Accepted Answer

A)  a 0.06 percent decrease in the price. 
B)  a 1.5 percent decrease in the price. 
C)  a 9.6 percent decrease in the price. 
D)  a 15 percent decrease in the price. 
A)  a 0.06 percent decrease in the price. 
B)  a 1.5 percent decrease in the price. 
C)  a 9.6 percent decrease in the price. 
D)  a 15 percent decrease in the price.

Question 10

If the demand for donuts is elastic, then a decrease in the price of donuts will

Accepted Answer

A)  increase total revenue of donut sellers. 
B)  decrease total revenue of donut sellers. 
C)  not change total revenue of donut sellers. 
D)  There is not enough information to answer this question. 
A)  increase total revenue of donut sellers. 
B)  decrease total revenue of donut sellers. 
C)  not change total revenue of donut sellers. 
D)  There is not enough information to answer this question.

Question 11

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?

Accepted Answer

A)  The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. 
B)  The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. 
C)  Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. 
D)  A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant. 
A)  The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. 
B)  The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. 
C)  Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. 
D)  A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant.

Question 13

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

Accepted Answer

A) True 
 B)False

Question 14

When studying how some event or policy affects a market, elasticity provides information on the

Accepted Answer

A)  equity effects on the market by identifying the winners and losers. 
B)  magnitude of the effect on the market. 
C)  speed of adjustment of the market in response to the event or policy. 
D)  number of market participants who are directly affected by the event or policy. 
A)  equity effects on the market by identifying the winners and losers. 
B)  magnitude of the effect on the market. 
C)  speed of adjustment of the market in response to the event or policy. 
D)  number of market participants who are directly affected by the event or policy.

Question 15

Total revenue will be at its largest value on a linear demand curve at the

Accepted Answer

A)  top of the curve, where prices are highest. 
B)  midpoint of the curve. 
C)  low end of the curve, where quantity demanded is highest. 
D)  None of the above is correct. 
A)  top of the curve, where prices are highest. 
B)  midpoint of the curve. 
C)  low end of the curve, where quantity demanded is highest. 
D)  None of the above is correct.

Question 16

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price elastic demand?

Accepted Answer

The answer of Suppose that good X is a luxury...

Question 17

When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of demand

Accepted Answer

A)  first becomes smaller, then larger. 
B)  always becomes larger. 
C)  always becomes smaller. 
D)  first becomes larger, then smaller. 
A)  first becomes smaller, then larger. 
B)  always becomes larger. 
C)  always becomes smaller. 
D)  first becomes larger, then smaller.

Question 18

Figure 5-4  
-Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are Q = 2,000, P= $15) and Q = 2,400, P = $12). Then which of the following scenarios is possible?

Accepted Answer

A)  Both of these points lie on section BC of the demand curve. 
B)  The vertical intercept of the demand curve is the point Q = 0, P = $22). 
C)  The horizontal intercept of the demand curve is the point Q = 5,000, P = $0). 
D)  Any of these scenarios is possible. 
A)  Both of these points lie on section BC of the demand curve. 
B)  The vertical intercept of the demand curve is the point Q = 0, P = $22). 
C)  The horizontal intercept of the demand curve is the point Q = 5,000, P = $0). 
D)  Any of these scenarios is possible.

Question 19

Figure 5-4  
-Refer to Figure 5-4. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to

Accepted Answer

A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  first decrease, then increase until total revenue is maximized. 
A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  first decrease, then increase until total revenue is maximized.

Question 20

Demand is elastic if the price elasticity of demand is

Accepted Answer

A)  less than 1. 
B)  equal to 1. 
C)  equal to 0. 
D)  greater than 1. 
A)  less than 1. 
B)  equal to 1. 
C)  equal to 0. 
D)  greater than 1.

Exam 5: Elasticity and Its Application

Cross-price elasticity is used to determine whether goods are inferior or normal goods.

If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is 2.

Figure 5-11 A: The Elasticity of Demand -Refer to Figure 5-11. If price increases from $10 to $20, total revenue will

What is the price elasticity of demand at any point on a perfectly elastic demand curve?

Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the long run?

A linear, downward-sloping demand curve has a constant elasticity but a changing slope.

An advance in farm technology that results in an increased market supply is

If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of

If the demand for donuts is elastic, then a decrease in the price of donuts will

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

When studying how some event or policy affects a market, elasticity provides information on the

Total revenue will be at its largest value on a linear demand curve at the

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price elastic demand?

When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of demand

Figure 5-4 -Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are Q = 2,000, P= $15) and Q = 2,400, P = $12). Then which of the following scenarios is possible?

Figure 5-4 -Refer to Figure 5-4. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to

Demand is elastic if the price elasticity of demand is

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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