Question 1

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

Accepted Answer

A)  yoga mats 
B)  prescription medicine 
C)  protein powder 
D)  gym memberships 
A)  yoga mats 
B)  prescription medicine 
C)  protein powder 
D)  gym memberships

Question 2

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

Accepted Answer

A)  0.75. 
B)  1.25. 
C)  1.33. 
D)  1.60. 
A)  0.75. 
B)  1.25. 
C)  1.33. 
D)  1.60.

Question 3

Figure 5-12  
-Refer to Figure 5-12. Sellers' total revenue would increase if the price

Accepted Answer

A)  increased from $6 to $9. 
B)  increased from $33 to $36. 
C)  decreased from $15 to $12. 
D)  All of the above are correct. 
A)  increased from $6 to $9. 
B)  increased from $33 to $36. 
C)  decreased from $15 to $12. 
D)  All of the above are correct.

Question 4

Suppose demand is given by the equation:   Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Accepted Answer

The price

Question 5

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

Accepted Answer

A) True 
 B)False

Question 6

Figure 5-17  
-Refer to Figure 5-17. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  The effect on total revenue cannot be determined from the given information. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  The effect on total revenue cannot be determined from the given information.

Question 7

If the cross-price elasticity of two goods is negative, then the two goods are

Accepted Answer

A)  necessities. 
B)  complements. 
C)  normal goods. 
D)  inferior goods. 
A)  necessities. 
B)  complements. 
C)  normal goods. 
D)  inferior goods.

Question 8

If a change in the price of a good results in no change in total revenue, then

Accepted Answer

A)  the demand for the good must be elastic. 
B)  the demand for the good must be inelastic. 
C)  the demand for the good must be unit elastic. 
D)  buyers must not respond very much to a change in price. 
A)  the demand for the good must be elastic. 
B)  the demand for the good must be inelastic. 
C)  the demand for the good must be unit elastic. 
D)  buyers must not respond very much to a change in price.

Question 9

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

Accepted Answer

A)  market power is substantial. 
B)  supply is perfectly inelastic. 
C)  supply is more elastic at low levels of output and less elastic at high levels of output. 
D)  supply is less elastic at low levels of output and more elastic at high levels of output. 
A)  market power is substantial. 
B)  supply is perfectly inelastic. 
C)  supply is more elastic at low levels of output and less elastic at high levels of output. 
D)  supply is less elastic at low levels of output and more elastic at high levels of output.

Question 10

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Accepted Answer

A)  Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept. 
B)  Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept. 
C)  Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage. 
D)  Without elasticity, it is very difficult to assess the degree of competition within a market. 
A)  Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept. 
B)  Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept. 
C)  Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage. 
D)  Without elasticity, it is very difficult to assess the degree of competition within a market.

Question 11

If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is

Accepted Answer

A)  perfectly inelastic, and the demand curve is vertical. 
B)  elastic, and the demand curve is a straight, downward-sloping line. 
C)  perfectly elastic, and the demand curve is horizontal. 
D)  elastic, and the demand curve is something other than a straight, downward-sloping line. 
A)  perfectly inelastic, and the demand curve is vertical. 
B)  elastic, and the demand curve is a straight, downward-sloping line. 
C)  perfectly elastic, and the demand curve is horizontal. 
D)  elastic, and the demand curve is something other than a straight, downward-sloping line.

Question 12

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

Accepted Answer

A) True 
 B)False

Question 13

Cross-price elasticity of demand measures how

Accepted Answer

A)  the price of one good changes in response to a change in the price of another good. 
B)  the quantity demanded of one good changes in response to a change in the quantity demanded of another good. 
C)  the quantity demanded of one good changes in response to a change in the price of another good. 
D)  strongly normal or inferior a good is. 
A)  the price of one good changes in response to a change in the price of another good. 
B)  the quantity demanded of one good changes in response to a change in the quantity demanded of another good. 
C)  the quantity demanded of one good changes in response to a change in the price of another good. 
D)  strongly normal or inferior a good is.

Question 14

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

Accepted Answer

A)  The direct impact is on buyers, not sellers. 
B)  Successful drug interdiction policies reduce the demand for illegal drugs. 
C)  Drug addicts will have an even greater need for quick cash to support their habits. 
D)  In the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs. 
A)  The direct impact is on buyers, not sellers. 
B)  Successful drug interdiction policies reduce the demand for illegal drugs. 
C)  Drug addicts will have an even greater need for quick cash to support their habits. 
D)  In the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs.

Question 15

-Refer to Table 5-12. Between which two quantities listed is demand most inelastic?

Accepted Answer

The answer of  
-Refer to Table 5-12. Between which...

Question 16

The price elasticity of supply along a typical supply curve is

Accepted Answer

A)  constant. 
B)  equal to zero. 
C)  higher at low levels of quantity supplied and lower at high levels of quantity supplied. 
D)  lower at low levels of quantity supplied and higher at high levels of quantity supplied. 
A)  constant. 
B)  equal to zero. 
C)  higher at low levels of quantity supplied and lower at high levels of quantity supplied. 
D)  lower at low levels of quantity supplied and higher at high levels of quantity supplied.

Question 17

Scenario 5-3
Suppose that the supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-3. The price elasticity of supply for aged cheddar cheese could be

Accepted Answer

A)  -1. 
B)  0. 
C)  0.5. 
D)  1.5. 
A)  -1. 
B)  0. 
C)  0.5. 
D)  1.5.

Question 18

Figure 5-21  
-Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $15 and $25?

Accepted Answer

The price

Question 19

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to

Accepted Answer

A)  increase the total revenue of wheat farmers. 
B)  decrease the total revenue of wheat farmers. 
C)  decrease the demand for wheat. 
D)  decrease the supply of wheat. 
A)  increase the total revenue of wheat farmers. 
B)  decrease the total revenue of wheat farmers. 
C)  decrease the demand for wheat. 
D)  decrease the supply of wheat.

Question 20

The flatter the demand curve that passes through a given point, the more elastic the demand.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

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

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

Figure 5-12 -Refer to Figure 5-12. Sellers' total revenue would increase if the price

Suppose demand is given by the equation: Using the midpoint method, what is the price elasticity of demand between $1 and $2?

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

Figure 5-17 -Refer to Figure 5-17. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

If the cross-price elasticity of two goods is negative, then the two goods are

If a change in the price of a good results in no change in total revenue, then

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

Cross-price elasticity of demand measures how

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

-Refer to Table 5-12. Between which two quantities listed is demand most inelastic?

The price elasticity of supply along a typical supply curve is

Figure 5-21 -Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $15 and $25?

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to

The flatter the demand curve that passes through a given point, the more elastic the 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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