Question 1

Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

Accepted Answer

A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct because a price decrease never leads to an decrease in total revenue. 
A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct because a price decrease never leads to an decrease in total revenue.

Question 2

Demand is said to have unit elasticity if the price elasticity of demand is

Accepted Answer

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

Question 3

If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.

Accepted Answer

A) True 
 B)False

Question 4

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

Accepted Answer

A)  1.43, and an increase in the price will cause hotels' total revenue to decrease. 
B)  1.43, and an increase in the price will cause hotels' total revenue to increase. 
C)  0.70, and an increase in the price will cause hotels' total revenue to decrease. 
D)  0.70, and an increase in the price will cause hotels' total revenue to increase. 
A)  1.43, and an increase in the price will cause hotels' total revenue to decrease. 
B)  1.43, and an increase in the price will cause hotels' total revenue to increase. 
C)  0.70, and an increase in the price will cause hotels' total revenue to decrease. 
D)  0.70, and an increase in the price will cause hotels' total revenue to increase.

Question 5

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy's cross-price elasticity of demand for beans and rice is

Accepted Answer

A)  0.71, and they are substitutes. 
B)  -0.71, and they are complements. 
C)  1.4, and they are substitutes. 
D)  -1.4, and they are complements. 
A)  0.71, and they are substitutes. 
B)  -0.71, and they are complements. 
C)  1.4, and they are substitutes. 
D)  -1.4, and they are complements.

Question 6

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

Accepted Answer

A)  Scenario A describes both the short run and the long run. 
B)  Scenario D describes both the short run and the long run. 
C)  Scenario D describes the short run, whereas scenario A describes the long run. 
D)  Scenario C describes the short run, whereas scenario B describes the long run. 
A)  Scenario A describes both the short run and the long run. 
B)  Scenario D describes both the short run and the long run. 
C)  Scenario D describes the short run, whereas scenario A describes the long run. 
D)  Scenario C describes the short run, whereas scenario B describes the long run.

Question 7

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. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

Accepted Answer

A)  The income elasticity is 0.18 so pizza is a normal good. 
B)  The income elasticity is -1 so pizza is an inferior good. 
C)  The income elasticity is 1 so pizza is unitary elastic. 
D)  The income elasticity is 1 so pizza is a normal good. 
A)  The income elasticity is 0.18 so pizza is a normal good. 
B)  The income elasticity is -1 so pizza is an inferior good. 
C)  The income elasticity is 1 so pizza is unitary elastic. 
D)  The income elasticity is 1 so pizza is a normal good.

Question 8

Figure 5-4  
-Refer to Figure 5-4. If the price increases in the region of the demand curve between points B and C, 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 9

Elasticity is

Accepted Answer

A)  a measure of how much buyers and sellers respond to changes in market conditions. 
B)  the study of how the allocation of resources affects economic well-being. 
C)  the maximum amount that a buyer will pay for a good. 
D)  the value of everything a seller must give up to produce a good. 
A)  a measure of how much buyers and sellers respond to changes in market conditions. 
B)  the study of how the allocation of resources affects economic well-being. 
C)  the maximum amount that a buyer will pay for a good. 
D)  the value of everything a seller must give up to produce a good.

Question 10

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is

Accepted Answer

A)  infinity. 
B)  zero. 
C)  one. 
D)  negative one. 
A)  infinity. 
B)  zero. 
C)  one. 
D)  negative one.

Question 11

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Accepted Answer

A) True 
 B)False

Question 12

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Accepted Answer

A) True 
 B)False

Question 13

Supply tends to be more elastic in the short run and more inelastic in the long run.

Accepted Answer

A) True 
 B)False

Question 14

Figure 5-3  
-Refer to Figure 5-3. Which demand curve is perfectly inelastic?

Accepted Answer

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

Question 15

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

Accepted Answer

A) True 
 B)False

Question 16

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

Accepted Answer

A)  raise the price, reduce the quantity, decrease total revenues, and decrease crime. 
B)  lower the price, increase the quantity, increase total revenues, and increase crime. 
C)  raise the price, increase the quantity, decrease total revenues, and increase crime. 
D)  raise the price, reduce the quantity, increase total revenues, and increase crime. 
A)  raise the price, reduce the quantity, decrease total revenues, and decrease crime. 
B)  lower the price, increase the quantity, increase total revenues, and increase crime. 
C)  raise the price, increase the quantity, decrease total revenues, and increase crime. 
D)  raise the price, reduce the quantity, increase total revenues, and increase crime.

Question 17

Which of the following statements is not valid when supply is perfectly elastic?

Accepted Answer

A)  The elasticity of supply approaches infinity. 
B)  The supply curve is horizontal. 
C)  Very small changes in price lead to very large changes in quantity supplied. 
D)  The time period under consideration is more likely a short period rather than a long period. 
A)  The elasticity of supply approaches infinity. 
B)  The supply curve is horizontal. 
C)  Very small changes in price lead to very large changes in quantity supplied. 
D)  The time period under consideration is more likely a short period rather than a long period.

Question 18

Figure 5-18  
-Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $5 and $6?

Accepted Answer

A)  0.60 
B)  0.64 
C)  1.57 
D)  1.67 
A)  0.60 
B)  0.64 
C)  1.57 
D)  1.67

Question 19

Elasticity measures how responsive quantity is to changes in price.

Accepted Answer

A) True 
 B)False

Question 20

Moving downward and to the right along a linear demand curve, we know that total revenue

Accepted Answer

A)  first increases, then decreases. 
B)  first decreases, then increases. 
C)  always increases. 
D)  always decreases. 
A)  first increases, then decreases. 
B)  first decreases, then increases. 
C)  always increases. 
D)  always decreases.

Exam 5: Elasticity and Its Application

Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

Demand is said to have unit elasticity if the price elasticity of demand is

If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy's cross-price elasticity of demand for beans and rice is

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

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

Elasticity is

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is

Cross-price elasticity is used to determine whether goods are substitutes or complements.

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Supply tends to be more elastic in the short run and more inelastic in the long run.

Figure 5-3 -Refer to Figure 5-3. Which demand curve is perfectly inelastic?

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

Which of the following statements is not valid when supply is perfectly elastic?

Figure 5-18 -Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $5 and $6?

Elasticity measures how responsive quantity is to changes in price.

Moving downward and to the right along a linear demand curve, we know that total revenue

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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