Question 1

Figure 5-5  
-Refer to Figure 5-5. Using the midpoint method, between prices of $50 and $60, price elasticity of demand is about

Accepted Answer

A)  0.22. 
B)  0.82. 
C)  1.22. 
D)  2. 
A)  0.22. 
B)  0.82. 
C)  1.22. 
D)  2.

Question 2

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

Accepted Answer

A)  raise both price and total revenues. 
B)  lower both price and total revenues. 
C)  raise price and lower total revenues. 
D)  lower price and raise total revenues. 
A)  raise both price and total revenues. 
B)  lower both price and total revenues. 
C)  raise price and lower total revenues. 
D)  lower price and raise total revenues.

Question 3

If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

Accepted Answer

A) True 
 B)False

Question 4

A linear, upward-sloping supply curve has

Accepted Answer

A)  a constant slope and a changing price elasticity of supply. 
B)  a changing slope and a constant price elasticity of supply. 
C)  both a constant slope and a constant price elasticity of supply. 
D)  both a changing slope and a changing price elasticity of supply. 
A)  a constant slope and a changing price elasticity of supply. 
B)  a changing slope and a constant price elasticity of supply. 
C)  both a constant slope and a constant price elasticity of supply. 
D)  both a changing slope and a changing price elasticity of supply.

Question 5

The demand for grape-flavored Hubba Bubba bubble gum is likely

Accepted Answer

A)  inelastic because there are many close substitutes for grape-flavored Hubba Bubba . 
B)  elastic because there are many close substitutes for grape-flavored Hubba Bubba. 
C)  inelastic because the market is broadly defined. 
D)  elastic because the market is broadly defined. 
A)  inelastic because there are many close substitutes for grape-flavored Hubba Bubba . 
B)  elastic because there are many close substitutes for grape-flavored Hubba Bubba. 
C)  inelastic because the market is broadly defined. 
D)  elastic because the market is broadly defined.

Question 6

Demand is inelastic if the price elasticity of demand is greater than 1.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about

Accepted Answer

A)  0.67% in the short run and 0.17% in the long run. 
B)  3% in the short run and 1.2% in the long run. 
C)  6% in the short run and 24% in the long run. 
D)  66.7% in the short run and 16.7% in the long run. 
A)  0.67% in the short run and 0.17% in the long run. 
B)  3% in the short run and 1.2% in the long run. 
C)  6% in the short run and 24% in the long run. 
D)  66.7% in the short run and 16.7% in the long run.

Question 8

Figure 5-14  
-Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic?

Accepted Answer

A)  $16 to $40 
B)  $40 to $100 
C)  $100 to $220 
D)  $220 to $430 
A)  $16 to $40 
B)  $40 to $100 
C)  $100 to $220 
D)  $220 to $430

Question 9

Suppose that demand is inelastic within a certain price range. For that price range,

Accepted Answer

A)  an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price. 
B)  an increase in price would decrease total revenue because the decrease in quantity demanded is proportionately greater than the increase in price. 
C)  a decrease in price would increase total revenue because the increase in quantity demanded is proportionately smaller than the decrease in price. 
D)  a decrease in price would not affect total revenue. 
A)  an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price. 
B)  an increase in price would decrease total revenue because the decrease in quantity demanded is proportionately greater than the increase in price. 
C)  a decrease in price would increase total revenue because the increase in quantity demanded is proportionately smaller than the decrease in price. 
D)  a decrease in price would not affect total revenue.

Question 10

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

Accepted Answer

A) True 
 B)False

Question 11

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat. Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

Accepted Answer

The farmer prefers a market in

Question 12

The value of the price elasticity of demand for a good will be relatively large when

Accepted Answer

A)  there are no good substitutes available for the good. 
B)  the time period in question is relatively short. 
C)  the good is a luxury rather than a necessity. 
D)  All of the above are correct. 
A)  there are no good substitutes available for the good. 
B)  the time period in question is relatively short. 
C)  the good is a luxury rather than a necessity. 
D)  All of the above are correct.

Question 13

For a particular good, an 8 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A)  There are no close substitutes for this good. 
B)  The good is a necessity. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is long. 
A)  There are no close substitutes for this good. 
B)  The good is a necessity. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is long.

Question 14

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

Accepted Answer

A)  lower the price of the cinnamon rolls. 
B)  leave the price of the cinnamon rolls unchanged. 
C)  raise the price of the cinnamon rolls. 
D)  reduce costs. 
A)  lower the price of the cinnamon rolls. 
B)  leave the price of the cinnamon rolls unchanged. 
C)  raise the price of the cinnamon rolls. 
D)  reduce costs.

Question 15

In January the price of widgets was $1.00, and Wendy's Widgets produced 80 widgets. In February the price of widgets was $1.50, and Wendy's Widgets produced 110 widgets. In March the price of widgets was $2.00, and Wendy's Widgets produced 140 widgets. The price elasticity of supply of Wendy's Widgets was about

Accepted Answer

A)  0.79 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
B)  1.27 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
C)  0.79 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
D)  1.27 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
A)  0.79 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
B)  1.27 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
C)  0.79 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
D)  1.27 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00.

Question 16

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

Accepted Answer

A)  0.55. 
B)  1.83. 
C)  2. 
D)  10. 
A)  0.55. 
B)  1.83. 
C)  2. 
D)  10.

Question 17

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

Accepted Answer

A)  0.63, and supply is elastic. 
B)  0.63, and supply is inelastic. 
C)  1.60, and supply is elastic. 
D)  1.60, and supply is inelastic. 
A)  0.63, and supply is elastic. 
B)  0.63, and supply is inelastic. 
C)  1.60, and supply is elastic. 
D)  1.60, and supply is inelastic.

Question 18

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

Accepted Answer

A)  strawberry-banana milk shakes 
B)  gasoline in the short run 
C)  diamond earrings 
D)  box seats at a major league baseball game 
A)  strawberry-banana milk shakes 
B)  gasoline in the short run 
C)  diamond earrings 
D)  box seats at a major league baseball game

Question 19

You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your movies.
Your friend who took an economics course in college tells you that there may be a way to increase your total revenue. Given the demand curves shown, answer the following questions.     
a. What is your current total revenue for both groups?
b. The elasticity of demand is more elastic in which market?
c. Which market has the more inelastic demand?
d. What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic?
e. What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic?
f. Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3.
How much could you increase total revenue if you take his advice?

Accepted Answer

a. Total revenue from children's tickets

Question 20

Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs is

Accepted Answer

A)  2.33, and hot dogs are a normal good. 
B)  -2.33, and hot dogs are an inferior good. 
C)  0.43, and hot dogs are a normal good. 
D)  -0.43, and hot dogs are an inferior good. 
A)  2.33, and hot dogs are a normal good. 
B)  -2.33, and hot dogs are an inferior good. 
C)  0.43, and hot dogs are a normal good. 
D)  -0.43, and hot dogs are an inferior good.

Exam 5: Elasticity and Its Application

Figure 5-5 -Refer to Figure 5-5. Using the midpoint method, between prices of $50 and $60, price elasticity of demand is about

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

A linear, upward-sloping supply curve has

The demand for grape-flavored Hubba Bubba bubble gum is likely

Demand is inelastic if the price elasticity of demand is greater than 1.

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about

Figure 5-14 -Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic?

Suppose that demand is inelastic within a certain price range. For that price range,

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat. Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

The value of the price elasticity of demand for a good will be relatively large when

For a particular good, an 8 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

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

Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs 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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