Question 1

The smaller the price elasticity of demand, the

Accepted Answer

A)  steeper the demand curve will be through a given point. 
B)  flatter the demand curve will be through a given point. 
C)  more strongly buyers respond to a change in price between any two prices P1 and P2. 
D)  smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2. 
A)  steeper the demand curve will be through a given point. 
B)  flatter the demand curve will be through a given point. 
C)  more strongly buyers respond to a change in price between any two prices P1 and P2. 
D)  smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

Question 2

Figure 5-1  
-Refer to Figure 5-1. Between point A and point B on the graph, demand is

Accepted Answer

A)  perfectly elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  elastic, but not perfectly elastic. 
A)  perfectly elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  elastic, but not perfectly elastic.

Question 3

The cross-price elasticity of demand can tell us whether goods are

Accepted Answer

A)  normal or inferior. 
B)  elastic or inelastic. 
C)  luxuries or necessities. 
D)  complements or substitutes. 
A)  normal or inferior. 
B)  elastic or inelastic. 
C)  luxuries or necessities. 
D)  complements or substitutes.

Question 4

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

Accepted Answer

A)  0.3 
B)  1 
C)  1.8 
D)  None of the above could be correct. 
A)  0.3 
B)  1 
C)  1.8 
D)  None of the above could be correct.

Question 5

Figure 5-4  
-Refer to Figure 5-4. Assume the section of the demand curve from B to C corresponds to prices between $0 and $15. Then, when the price changes between $7 and $9,

Accepted Answer

A)  quantity demanded changes proportionately less than the price. 
B)  quantity demanded changes proportionately more than the price. 
C)  quantity demanded changes the same amount proportionately as price. 
D)  the price elasticity of demand equals zero. 
A)  quantity demanded changes proportionately less than the price. 
B)  quantity demanded changes proportionately more than the price. 
C)  quantity demanded changes the same amount proportionately as price. 
D)  the price elasticity of demand equals zero.

Question 6

To determine whether a good is considered normal or inferior, one could examine the value of the

Accepted Answer

A)  income elasticity of demand for that good. 
B)  price elasticity of demand for that good. 
C)  price elasticity of supply for that good. 
D)  cross-price elasticity of demand for that good. 
A)  income elasticity of demand for that good. 
B)  price elasticity of demand for that good. 
C)  price elasticity of supply for that good. 
D)  cross-price elasticity of demand for that good.

Question 7

Table 5-4
The following table shows the demand schedule for a particular good.
  
-Refer to Table 5-4. Using the midpoint method, what is the price elasticity of demand when price rises from $12 to $16?

Accepted Answer

A)  0.43 
B)  0.67 
C)  2.33 
D)  4 
A)  0.43 
B)  0.67 
C)  2.33 
D)  4

Question 8

Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is

Accepted Answer

A)  -1.0, and X and Y are complements. 
B)  -1.0, and X and Y are substitutes. 
C)  1.0, and X and Y are complements. 
D)  1.0, and X and Y are substitutes. 
A)  -1.0, and X and Y are complements. 
B)  -1.0, and X and Y are substitutes. 
C)  1.0, and X and Y are complements. 
D)  1.0, and X and Y are substitutes.

Question 9

If the income elasticity of demand for a good is -1.40, is the good a normal or inferior good?

Accepted Answer

The good i

Question 10

If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a

Accepted Answer

A)  0.5 percent decrease in the quantity demanded. 
B)  2 percent decrease in the quantity demanded. 
C)  5 percent decrease in the quantity demanded. 
D)  50 percent decrease in the quantity demanded. 
A)  0.5 percent decrease in the quantity demanded. 
B)  2 percent decrease in the quantity demanded. 
C)  5 percent decrease in the quantity demanded. 
D)  50 percent decrease in the quantity demanded.

Question 11

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should

Accepted Answer

A)  plant more corn so that they would be able to sell more each year. 
B)  increase spending on fertilizer in an attempt to produce more corn on the acres they farm. 
C)  reduce the number of acres on which they plant corn. 
D)  contribute to a fund that promotes technological advances in corn production. 
A)  plant more corn so that they would be able to sell more each year. 
B)  increase spending on fertilizer in an attempt to produce more corn on the acres they farm. 
C)  reduce the number of acres on which they plant corn. 
D)  contribute to a fund that promotes technological advances in corn production.

Question 12

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is

Accepted Answer

A)  income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
B)  income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
C)  price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
D)  price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
A)  income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
B)  income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
C)  price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. 
D)  price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

Question 13

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 bread 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 14

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. personal computers or IBM personal computers

Accepted Answer

a. Diamonds are luxuries, and water is a

Question 15

The price elasticity of demand for mobile phones

Accepted Answer

A)  will be higher if there is an improvement in the production technology. 
B)  will be lower if consumers perceive mobile phones to be a necessity. 
C)  is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones. 
D)  All of the above are correct. 
A)  will be higher if there is an improvement in the production technology. 
B)  will be lower if consumers perceive mobile phones to be a necessity. 
C)  is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones. 
D)  All of the above are correct.

Question 16

Figure 5-4  
-Refer to Figure 5-4. The section of the demand curve at point 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 17

Figure 5-11   A: The Elasticity of Demand
-Refer to Figure 5-11. Suppose this demand curve is a straight, downward-sloping line all the way from the horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that i) demand is elastic and ii) a decrease in price from P1 to P2 causes an decrease in total revenue?

Accepted Answer

A)  0  $20. 
D)  None of the above is correct. 
A)  0  $20. 
D)  None of the above is correct.

Question 18

Figure 5-17  
-Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point A and point B?

Accepted Answer

A)  0.4 
B)  0.6 
C)  1.67 
D)  2.16 
A)  0.4 
B)  0.6 
C)  1.67 
D)  2.16

Question 19

There are very few, if any, good substitutes for motor oil. Therefore, the

Accepted Answer

A)  demand for motor oil would tend to be inelastic. 
B)  demand for motor oil would tend to be elastic. 
C)  demand for motor oil would tend to respond strongly to changes in prices of other goods. 
D)  supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars. 
A)  demand for motor oil would tend to be inelastic. 
B)  demand for motor oil would tend to be elastic. 
C)  demand for motor oil would tend to respond strongly to changes in prices of other goods. 
D)  supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Question 20

For a particular good, a 2 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 luxury. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is short. 
A)  There are no close substitutes for this good. 
B)  The good is a luxury. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is short.

Exam 5: Elasticity and Its Application

The smaller the price elasticity of demand, the

Figure 5-1 -Refer to Figure 5-1. Between point A and point B on the graph, demand is

The cross-price elasticity of demand can tell us whether goods are

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

Figure 5-4 -Refer to Figure 5-4. Assume the section of the demand curve from B to C corresponds to prices between $0 and $15. Then, when the price changes between $7 and $9,

To determine whether a good is considered normal or inferior, one could examine the value of the

Table 5-4 The following table shows the demand schedule for a particular good. -Refer to Table 5-4. Using the midpoint method, what is the price elasticity of demand when price rises from $12 to $16?

Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is

If the income elasticity of demand for a good is -1.40, is the good a normal or inferior good?

If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is

The price elasticity of demand for mobile phones

Figure 5-4 -Refer to Figure 5-4. The section of the demand curve at point B represents the

Figure 5-17 -Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point A and point B?

There are very few, if any, good substitutes for motor oil. Therefore, the

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

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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