Question 1

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. A

Question 2

Demand is inelastic if the price elasticity of demand is

Accepted Answer

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

Question 3

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. D

Question 4

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Accepted Answer

A)  inelastic. 
B)  unit elastic. 
C)  elastic. 
D)  highly responsive to changes in income. 
A)  inelastic. 
B)  unit elastic. 
C)  elastic. 
D)  highly responsive to changes in income.

Question 5

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Accepted Answer

A) True 
 B)False

Question 6

Table 5-2
  
-Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is

Accepted Answer

A)  5.3. 
B)  2.8. 
C)  0.8. 
D)  0.36. 
A)  5.3. 
B)  2.8. 
C)  0.8. 
D)  0.36.

Question 7

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 8

The demand for Rice Krispies is more elastic than the demand for cereal in general.

Accepted Answer

A) True 
 B)False

Question 9

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

Accepted Answer

A)  0.02. 
B)  0.33. 
C)  3. 
D)  4. 
A)  0.02. 
B)  0.33. 
C)  3. 
D)  4.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic?

Accepted Answer

In the section of the demand curve from

Question 12

The price elasticity of demand for bread

Accepted Answer

A)  is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread. 
B)  depends, in part, on the availability of close substitutes for bread. 
C)  reflects the many economic, social, and psychological forces that influence consumers' tastes for bread. 
D)  All of the above are correct. 
A)  is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread. 
B)  depends, in part, on the availability of close substitutes for bread. 
C)  reflects the many economic, social, and psychological forces that influence consumers' tastes for bread. 
D)  All of the above are correct.

Question 13

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about

Accepted Answer

A)  1.29, and a decrease in price from $200 to $160 results in an increase in total revenue. 
B)  1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue. 
C)  0.78, and a decrease in price from $200 to $160 results in an increase in total revenue. 
D)  0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue. 
A)  1.29, and a decrease in price from $200 to $160 results in an increase in total revenue. 
B)  1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue. 
C)  0.78, and a decrease in price from $200 to $160 results in an increase in total revenue. 
D)  0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue.

Question 14

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

Accepted Answer

A)  Supply curves are steeper over long periods of time than over short periods of time. 
B)  Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. 
C)  The number of firms in a market tends to be more variable over long periods of time than over short periods of time. 
D)  Firms prefer to change their prices in the short run rather than in the long run. 
A)  Supply curves are steeper over long periods of time than over short periods of time. 
B)  Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. 
C)  The number of firms in a market tends to be more variable over long periods of time than over short periods of time. 
D)  Firms prefer to change their prices in the short run rather than in the long run.

Question 15

If the price elasticity of demand for a good is 6, then a 3 percent decrease in price results in

Accepted Answer

A)  a 20 percent increase in the quantity demanded. 
B)  an 18 percent increase in the quantity demanded. 
C)  a 2 percent increase in the quantity demanded. 
D)  a 1.8 percent increase in the quantity demanded. 
A)  a 20 percent increase in the quantity demanded. 
B)  an 18 percent increase in the quantity demanded. 
C)  a 2 percent increase in the quantity demanded. 
D)  a 1.8 percent increase in the quantity demanded.

Question 16

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 17

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 18

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

Accepted Answer

A)  a 7.5 increase in the price of the good 
B)  a 13.33 percent increase in the price of the good 
C)  an increase in the price of the good from $7.50 to $10 
D)  an increase in the price of the good from $10 to $17.50 
A)  a 7.5 increase in the price of the good 
B)  a 13.33 percent increase in the price of the good 
C)  an increase in the price of the good from $7.50 to $10 
D)  an increase in the price of the good from $10 to $17.50

Question 19

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

Accepted Answer

A)  0.5, and supply is elastic. 
B)  0.5, and supply is inelastic. 
C)  2, and supply is inelastic. 
D)  2, and supply is elastic. 
A)  0.5, and supply is elastic. 
B)  0.5, and supply is inelastic. 
C)  2, and supply is inelastic. 
D)  2, and supply is elastic.

Question 20

Suppose demand is given by the equation:   At what point along this demand curve will total revenue be maximized?

Accepted Answer

Total revenue is con

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

Demand is inelastic if the price elasticity of demand is

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Table 5-2 -Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is

The demand for Rice Krispies is more elastic than the demand for cereal in general.

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

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

The price elasticity of demand for bread

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

If the price elasticity of demand for a good is 6, then a 3 percent decrease in price results in

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?

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

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

Suppose demand is given by the equation: At what point along this demand curve will total revenue be maximized?

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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Exam 5: Elasticity and Its Application

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

Demand is inelastic if the price elasticity of demand is

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Table 5-2 -Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is

The demand for Rice Krispies is more elastic than the demand for cereal in general.

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

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

The price elasticity of demand for bread

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

If the price elasticity of demand for a good is 6, then a 3 percent decrease in price results in

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?

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

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

Suppose demand is given by the equation: At what point along this demand curve will total revenue be maximized?

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters