Question 1

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

Accepted Answer

A)  2 percent more concerts. 
B)  5 percent more concerts. 
C)  10 percent more concerts. 
D)  20 percent more concerts. 
A)  2 percent more concerts. 
B)  5 percent more concerts. 
C)  10 percent more concerts. 
D)  20 percent more concerts.

Question 2

Table 5-8
  
-Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?

Accepted Answer

A)  -3.5 
B)  -0.29 
C)  0.29 
D)  3.5 
A)  -3.5 
B)  -0.29 
C)  0.29 
D)  3.5

Question 3

Scenario 5-6
Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar.
-Refer to Scenario 5-6. What would we expect to observe in the caviar market?

Accepted Answer

A)  Equilibrium prices and quantities will increase. 
B)  Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic. 
C)  Total revenues to caviar firms will increase if the demand for caviar is inelastic. 
D)  All of the above are correct. 
A)  Equilibrium prices and quantities will increase. 
B)  Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic. 
C)  Total revenues to caviar firms will increase if the demand for caviar is inelastic. 
D)  All of the above are correct.

Question 4

If two goods are substitutes, their cross-price elasticity will be

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  equal to the difference between the income elasticities of demand for the two goods. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  equal to the difference between the income elasticities of demand for the two goods.

Question 5

Which of the following statements is correct?

Accepted Answer

A)  The demand for natural gas is more elastic over a short period of time than over a long period of time. 
B)  The demand for smoke alarms is more elastic than the demand for Persian rugs. 
C)  The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. 
D)  All of the above are correct. 
A)  The demand for natural gas is more elastic over a short period of time than over a long period of time. 
B)  The demand for smoke alarms is more elastic than the demand for Persian rugs. 
C)  The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. 
D)  All of the above are correct.

Question 6

In general, demand curves for necessities tend to be price elastic.

Accepted Answer

A) True 
 B)False

Question 7

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

Accepted Answer

A)  the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. 
B)  both the mayor and the city manager think that demand is elastic. 
C)  both the mayor and the city manager think that demand is inelastic. 
D)  the mayor thinks demand is inelastic, and the city manager thinks demand is elastic. 
A)  the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. 
B)  both the mayor and the city manager think that demand is elastic. 
C)  both the mayor and the city manager think that demand is inelastic. 
D)  the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Question 8

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 9

Figure 5-4  
-Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are Q = 1,000, P= $40) and Q = 1,500, P = $30). Then which of the following scenarios is possible?

Accepted Answer

A)  Both of these points lie on the section of the demand curve from B to C. 
B)  The vertical intercept of the demand curve is the point Q = 0, P = $60). 
C)  The horizontal intercept of the demand curve is the point Q = 1,800, P = $0). 
D)  Any of these scenarios is possible. 
A)  Both of these points lie on the section of the demand curve from B to C. 
B)  The vertical intercept of the demand curve is the point Q = 0, P = $60). 
C)  The horizontal intercept of the demand curve is the point Q = 1,800, P = $0). 
D)  Any of these scenarios is possible.

Question 10

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to

Accepted Answer

A)  an inelastic demand for oil and a reduction in the amount of oil supplied. 
B)  a reduction in the amount of oil supplied and a world-wide oil embargo. 
C)  a world-wide oil embargo and an elastic demand for oil. 
D)  a reduction in the amount of oil supplied and an elastic demand for oil. 
A)  an inelastic demand for oil and a reduction in the amount of oil supplied. 
B)  a reduction in the amount of oil supplied and a world-wide oil embargo. 
C)  a world-wide oil embargo and an elastic demand for oil. 
D)  a reduction in the amount of oil supplied and an elastic demand for oil.

Question 11

For a vertical demand curve,

Accepted Answer

A)  the slope is undefined, and the price elasticity of demand is equal to 0. 
B)  the slope is equal to 0, and the price elasticity of demand is undefined. 
C)  both the slope and price elasticity of demand are undefined. 
D)  both the slope and price elasticity of demand are equal to 0. 
A)  the slope is undefined, and the price elasticity of demand is equal to 0. 
B)  the slope is equal to 0, and the price elasticity of demand is undefined. 
C)  both the slope and price elasticity of demand are undefined. 
D)  both the slope and price elasticity of demand are equal to 0.

Question 12

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

Accepted Answer

A)  0.75. 
B)  1.25. 
C)  1.33. 
D)  1.60. 
A)  0.75. 
B)  1.25. 
C)  1.33. 
D)  1.60.

Question 13

Use the graph shown to answer the following questions. Put the correct letters) in the blank.   
a. The elastic section of the graph is represented by section _______.
b. The inelastic section of the graph is represented by section _______.
c. The unit elastic section of the graph is represented by section .
d. The portion of the graph in which a decrease in price would cause total revenue to fall would be _________.
e. The portion of the graph in which a decrease in price would cause total revenue to rise would be _________.
f. The portion of the graph in which a decrease in price would not cause a change in total revenue would be _________.
g. The section of the graph in which total revenue would be at a maximum would be
_______.
h. The section of the graph in which elasticity is greater than 1 is .
i. The section of the graph in which elasticity is equal to 1 is .
j. The section of the graph in which elasticity is less than 1 is .

Accepted Answer

a. A to B
b. B to C

Question 14

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 15

A linear, downward-sloping demand curve has a constant elasticity but a changing slope.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 18

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

Accepted Answer

A)  0.22. 
B)  0.67. 
C)  1.33. 
D)  1.50. 
A)  0.22. 
B)  0.67. 
C)  1.33. 
D)  1.50.

Question 19

If the cross-price elasticity of two goods is negative, then the two goods are

Accepted Answer

A)  necessities. 
B)  complements. 
C)  normal goods. 
D)  inferior goods. 
A)  necessities. 
B)  complements. 
C)  normal goods. 
D)  inferior goods.

Question 20

The smaller the price elasticity of demand, the

Accepted Answer

A)  more likely the product is a luxury. 
B)  smaller the responsiveness of quantity demanded to a change in price. 
C)  more substitutes the product has. 
D)  greater the responsiveness of quantity demanded to a change in price. 
A)  more likely the product is a luxury. 
B)  smaller the responsiveness of quantity demanded to a change in price. 
C)  more substitutes the product has. 
D)  greater the responsiveness of quantity demanded to a change in price.

Exam 5: Elasticity and Its Application

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

Table 5-8 -Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?

If two goods are substitutes, their cross-price elasticity will be

Which of the following statements is correct?

In general, demand curves for necessities tend to be price elastic.

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

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, for the good in question, two specific points on the demand curve are Q = 1,000, P= $40) and Q = 1,500, P = $30). Then which of the following scenarios is possible?

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to

For a vertical demand curve,

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

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

A linear, downward-sloping demand curve has a constant elasticity but a changing slope.

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?

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

If the cross-price elasticity of two goods is negative, then the two goods are

The smaller the price elasticity of demand, the

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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