Question 1

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

Accepted Answer

A)  the equilibrium quantity decreases, and the equilibrium price is unchanged. 
B)  the equilibrium price increases, and the equilibrium quantity is unchanged. 
C)  the equilibrium quantity and the equilibrium price both are unchanged. 
D)  buyers' total expenditure on the good is unchanged. 
A)  the equilibrium quantity decreases, and the equilibrium price is unchanged. 
B)  the equilibrium price increases, and the equilibrium quantity is unchanged. 
C)  the equilibrium quantity and the equilibrium price both are unchanged. 
D)  buyers' total expenditure on the good is unchanged.

Question 2

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

A)  The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. 
B)  Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. 
C)  Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. 
D)  All of the above are correct. 
A)  The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. 
B)  Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. 
C)  Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. 
D)  All of the above are correct.

Question 4

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 5

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

Accepted Answer

A)  use more fertilizers and weed killers to increase their yields. 
B)  plant additional acres to increase their output. 
C)  reduce the number of acres they plant to decrease their output. 
D)  Both a and b are correct. 
A)  use more fertilizers and weed killers to increase their yields. 
B)  plant additional acres to increase their output. 
C)  reduce the number of acres they plant to decrease their output. 
D)  Both a and b are correct.

Question 6

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

Accepted Answer

A) True 
 B)False

Question 7

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 8

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 9

If the price elasticity of demand is equal to 1, then demand is unit elastic.

Accepted Answer

A) True 
 B)False

Question 10

Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is

Accepted Answer

A)  0.82, and basketball tickets are a normal good. 
B)  0.82, and basketball tickets are an inferior good. 
C)  1.22, and basketball tickets are a normal good. 
D)  1.22, and basketball tickets are an inferior good. 
A)  0.82, and basketball tickets are a normal good. 
B)  0.82, and basketball tickets are an inferior good. 
C)  1.22, and basketball tickets are a normal good. 
D)  1.22, and basketball tickets are an inferior good.

Question 11

-Refer to Table 5-12. Between which two quantities listed is demand unit elastic?

Accepted Answer

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

Question 12

Figure 5-20  
-Refer to Figure 5-20. Which supply curve is most likely relevant over a very long period of time?

Accepted Answer

A)  S1 
B)  S2 
C)  S3 
D)  All of the above are equally likely to be relevant over a very long period of time. 
A)  S1 
B)  S2 
C)  S3 
D)  All of the above are equally likely to be relevant over a very long period of time.

Question 13

Figure 5-4  
-Refer to Figure 5-4. If the price decreases 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 increase, then decrease until total revenue is maximized. 
A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  first increase, then decrease until total revenue is maximized.

Question 14

If the price elasticity of demand for a good is 0.2, then a 3 percent decrease in price results in a

Accepted Answer

A)  0.6 percent increase in the quantity demanded. 
B)  1.5 percent increase in the quantity demanded. 
C)  2 percent increase in the quantity demanded. 
D)  6 percent increase in the quantity demanded. 
A)  0.6 percent increase in the quantity demanded. 
B)  1.5 percent increase in the quantity demanded. 
C)  2 percent increase in the quantity demanded. 
D)  6 percent increase in the quantity demanded.

Question 15

-Refer to Table 5-12. Using the midpoint method, what is the price elasticity of demand between $2 and $4?

Accepted Answer

The price

Question 16

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

Accepted Answer

A) True 
 B)False

Question 17

Figure 5-15  
-Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points C and D?

Accepted Answer

A)  0.21 
B)  0.29 
C)  0.73 
D)  1.36 
A)  0.21 
B)  0.29 
C)  0.73 
D)  1.36

Question 18

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

Accepted Answer

A)  1.50, and an increase in price will result in an increase in total revenue for good A. 
B)  1.50, and an increase in price will result in a decrease in total revenue for good A. 
C)  0.67, and an increase in price will result in an increase in total revenue for good A. 
D)  0.67, and an increase in price will result in a decrease in total revenue for good A. 
A)  1.50, and an increase in price will result in an increase in total revenue for good A. 
B)  1.50, and an increase in price will result in a decrease in total revenue for good A. 
C)  0.67, and an increase in price will result in an increase in total revenue for good A. 
D)  0.67, and an increase in price will result in a decrease in total revenue for good A.

Question 19

Frequently, in the short run, the quantity supplied of a good is

Accepted Answer

A)  impossible, or nearly impossible, to measure. 
B)  not very responsive to price changes. 
C)  determined by the quantity demanded of the good. 
D)  determined by psychological forces and other non-economic forces. 
A)  impossible, or nearly impossible, to measure. 
B)  not very responsive to price changes. 
C)  determined by the quantity demanded of the good. 
D)  determined by psychological forces and other non-economic forces.

Question 20

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income.
  
-Refer to Table 5-7. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20?

Accepted Answer

A)  0.56 
B)  0.75 
C)  1.33 
D)  1.80 
A)  0.56 
B)  0.75 
C)  1.33 
D)  1.80

Exam 5: Elasticity and Its Application

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

Which of the following statements about the price elasticity of demand is correct?

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.

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

If the price elasticity of demand is equal to 1, then demand is unit elastic.

Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is

-Refer to Table 5-12. Between which two quantities listed is demand unit elastic?

Figure 5-20 -Refer to Figure 5-20. Which supply curve is most likely relevant over a very long period of time?

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

If the price elasticity of demand for a good is 0.2, then a 3 percent decrease in price results in a

-Refer to Table 5-12. Using the midpoint method, what is the price elasticity of demand between $2 and $4?

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points C and D?

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

Frequently, in the short run, the quantity supplied of a good is

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20?

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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