Question 1

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

Accepted Answer

Price elasticity of demand measures the

Question 2

If demand for a product is perfectly inelastic,a change in price will not change total revenue.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is true?

Accepted Answer

A) In general,if a product has few substitutes it will have an elastic demand. 
B) The more time that passes the more inelastic the demand for a product becomes. 
C) The demand curve for a necessity is more elastic than the demand curve for a luxury. 
D) The more narrowly we define a market,the more elastic the demand for a product will be. 
A) In general,if a product has few substitutes it will have an elastic demand. 
B) The more time that passes the more inelastic the demand for a product becomes. 
C) The demand curve for a necessity is more elastic than the demand curve for a luxury. 
D) The more narrowly we define a market,the more elastic the demand for a product will be.

Question 4

For each pair of items below determine which product would have the higher price elasticity of demand (in absolute value).
a.Insulin for a diabetic or aspirin for someone suffering a headache.
b.A new Whirlpool 27 cu.ft.side-by-side refrigerator or electricity to power your all-electric home.
c.A can of Red Bull or soft drinks in general.

Accepted Answer

a.The demand for aspirin is more price e

Question 5

Supply is elastic whenever the value of the elasticity of supply is positive and greater than 1.

Accepted Answer

A) True 
 B)False

Question 6

Figure 6-1  
-Refer to Figure 6-1.A perfectly inelastic demand curve is shown in

Accepted Answer

A) Panel A. 
B) Panel B. 
C) Panel C. 
D) Panel D. 
A) Panel A. 
B) Panel B. 
C) Panel C. 
D) Panel D.

Question 7

Explain the economic concept of price elasticity of supply.How is price elasticity of supply calculated?

Accepted Answer

Price elasticity of supply refers to the

Question 8

The demand for heating oil in the short run is more elastic than the long run demand for heating oil.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the supply curve for digital cameras shifts to the right.This will cause a relatively large decrease in the price of digital cameras if both demand and supply are inelastic.

Accepted Answer

A) True 
 B)False

Question 10

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.

Accepted Answer

A) True 
 B)False

Question 11

Figure 6-1  
-Refer to Figure 6-1.A perfectly elastic demand curve is shown in

Accepted Answer

A) Panel A. 
B) Panel B. 
C) Panel C. 
D) Panel D. 
A) Panel A. 
B) Panel B. 
C) Panel C. 
D) Panel D.

Question 12

A study of the effects of the minimum wage on employment of low-skilled workers estimated the price elasticity of demand for low-skilled workers is -0.75.Suppose that the government is considering raising the minimum wage from $7.25 per hour to $7.75 per hour.Based on this information,calculate the percentage change in the employment of low skilled workers.Use the midpoint formula.

Accepted Answer

percent ch

Question 13

If the cross-price elasticity of demand between beer and wine is 0.31,then beer and wine are

Accepted Answer

A) complements. 
B) price-inelastic goods. 
C) substitutes. 
D) necessities. 
A) complements. 
B) price-inelastic goods. 
C) substitutes. 
D) necessities.

Question 14

Which of the following statements is true?

Accepted Answer

A) If the price of a good is lowered and total revenue decreases,demand is elastic. 
B) If the price of a good is raised and total revenue does not change,demand is perfectly elastic. 
C) If the price of a good is raised and total revenue increases,demand is inelastic. 
D) If the price of a good is lowered and total revenue increases,demand is inelastic. 
A) If the price of a good is lowered and total revenue decreases,demand is elastic. 
B) If the price of a good is raised and total revenue does not change,demand is perfectly elastic. 
C) If the price of a good is raised and total revenue increases,demand is inelastic. 
D) If the price of a good is lowered and total revenue increases,demand is inelastic.

Question 15

You are the manager of a theater.At present the theater charges the same admission price of $8 to all customers,regardless of age.You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults.You tell your supervisor that your proposal is likely to increase revenue.What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.

Accepted Answer

You believe that the price elasticity of

Question 16

Suppose the current price of oil is $90 a barrel and the quantity supplied is 800 million barrels per day.If the price elasticity of supply for oil in the short run is estimated at 0.5,use the midpoint formula to calculate the percentage change in quantity supplied when the price of oil rises to $98 a barrel.

Accepted Answer

The percentage change in quant

Question 17

If demand is perfectly elastic,the absolute value of the price elasticity coefficient is

Accepted Answer

A) infinity. 
B) zero. 
C) one. 
D) equal to the absolute value of the slope of the demand curve. 
A) infinity. 
B) zero. 
C) one. 
D) equal to the absolute value of the slope of the demand curve.

Question 18

If the demand for cell phone service is inelastic,then

Accepted Answer

A) the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B) the percentage change in quantity demanded is equal to the percentage change in price. 
C) the quantity demanded does not change in response to changes in price. 
D) the percentage change in quantity demanded is less than the percentage change in price (in absolute value). 
A) the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B) the percentage change in quantity demanded is equal to the percentage change in price. 
C) the quantity demanded does not change in response to changes in price. 
D) the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Question 19

If a supply curve is a horizontal line,supply is said to be

Accepted Answer

A) perfectly inelastic. 
B) unit elastic. 
C) inelastic. 
D) perfectly elastic. 
A) perfectly inelastic. 
B) unit elastic. 
C) inelastic. 
D) perfectly elastic.

Question 20

Over longer periods of time,increases in oil prices provide firms with incentives to explore and recover oil.What does this indicate about the long-run price elasticity of supply for oil?

Accepted Answer

A) The elasticity coefficient is likely to be higher in the long run than in the short run. 
B) The elasticity coefficient is likely to be lower in the long run than in the short run. 
C) The elasticity coefficient approaches 0 in the long run as supplies are depleted. 
D) The elasticity coefficient is unstable in the long run because oil supplies may be depleted. 
A) The elasticity coefficient is likely to be higher in the long run than in the short run. 
B) The elasticity coefficient is likely to be lower in the long run than in the short run. 
C) The elasticity coefficient approaches 0 in the long run as supplies are depleted. 
D) The elasticity coefficient is unstable in the long run because oil supplies may be depleted.

Exam 6: Elasticity: the Responsiveness of Demand and Supply

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

If demand for a product is perfectly inelastic,a change in price will not change total revenue.

Which of the following statements is true?

Supply is elastic whenever the value of the elasticity of supply is positive and greater than 1.

Figure 6-1 -Refer to Figure 6-1.A perfectly inelastic demand curve is shown in

Explain the economic concept of price elasticity of supply.How is price elasticity of supply calculated?

The demand for heating oil in the short run is more elastic than the long run demand for heating oil.

Suppose the supply curve for digital cameras shifts to the right.This will cause a relatively large decrease in the price of digital cameras if both demand and supply are inelastic.

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.

Figure 6-1 -Refer to Figure 6-1.A perfectly elastic demand curve is shown in

If the cross-price elasticity of demand between beer and wine is 0.31,then beer and wine are

Which of the following statements is true?

If demand is perfectly elastic,the absolute value of the price elasticity coefficient is

If the demand for cell phone service is inelastic,then

If a supply curve is a horizontal line,supply is said to be

Over longer periods of time,increases in oil prices provide firms with incentives to explore and recover oil.What does this indicate about the long-run price elasticity of supply for oil?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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