Question 1

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 2

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

Accepted Answer

A)  1.67 
B)  1.19 
C)  0.84 
D)  0.61 
A)  1.67 
B)  1.19 
C)  0.84 
D)  0.61

Question 3

On a downward-sloping linear demand curve, total revenue reaches its maximum value at the

Accepted Answer

A)  midpoint of the demand curve. 
B)  lower end of the demand curve. 
C)  upper end of the demand curve. 
D)  It is impossible to tell without knowing prices and quantities demanded. 
A)  midpoint of the demand curve. 
B)  lower end of the demand curve. 
C)  upper end of the demand curve. 
D)  It is impossible to tell without knowing prices and quantities demanded.

Question 4

Suppose the price elasticity of demand for a product is 1. If a supplier wants to increase revenue, what change should it make to price, if any?

Accepted Answer

No change,

Question 5

Which of the following is likely to have the most price inelastic demand?

Accepted Answer

A)  strawberry-banana milk shakes 
B)  gasoline in the short run 
C)  diamond earrings 
D)  box seats at a major league baseball game 
A)  strawberry-banana milk shakes 
B)  gasoline in the short run 
C)  diamond earrings 
D)  box seats at a major league baseball game

Question 6

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be

Accepted Answer

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

Question 7

Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by

Accepted Answer

A)  30%. 
B)  40%. 
C)  60%. 
D)  74%. 
A)  30%. 
B)  40%. 
C)  60%. 
D)  74%.

Question 8

Scenario 5-2
Suppose the demand function for good X is given by:   where   is the quantity demanded of good X,   is the price of good X, and   is the price of good Y, which is related to good X.
-Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about

Accepted Answer

A)  0.57, and X and Y are substitutes. 
B)  -0.22, and X and Y are complements. 
C)  -0.80, and X and Y are complements. 
D)  -2.57, and X and Y are complements. 
A)  0.57, and X and Y are substitutes. 
B)  -0.22, and X and Y are complements. 
C)  -0.80, and X and Y are complements. 
D)  -2.57, and X and Y are complements.

Question 9

Figure 5-12  
-Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would

Accepted Answer

A)  increase by $4,800, and demand is elastic between points X and Z. 
B)  increase by $7,200, and demand is elastic between points X and Z. 
C)  decrease by $4,800, and demand is inelastic between points X and Z. 
D)  decrease by $7,200, and demand is inelastic between points X and Z. 
A)  increase by $4,800, and demand is elastic between points X and Z. 
B)  increase by $7,200, and demand is elastic between points X and Z. 
C)  decrease by $4,800, and demand is inelastic between points X and Z. 
D)  decrease by $7,200, and demand is inelastic between points X and Z.

Question 10

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

Accepted Answer

A)  ignoring the law of demand. 
B)  assuming that the demand for university education is elastic. 
C)  assuming that the demand for university education is inelastic. 
D)  assuming that the supply of university education is elastic. 
A)  ignoring the law of demand. 
B)  assuming that the demand for university education is elastic. 
C)  assuming that the demand for university education is inelastic. 
D)  assuming that the supply of university education is elastic.

Question 11

Income elasticity of demand measures how

Accepted Answer

A)  the quantity demanded changes as consumer income changes. 
B)  consumer purchasing power is affected by a change in the price of a good. 
C)  the price of a good is affected when there is a change in consumer income. 
D)  many units of a good a consumer can buy given a certain income level. 
A)  the quantity demanded changes as consumer income changes. 
B)  consumer purchasing power is affected by a change in the price of a good. 
C)  the price of a good is affected when there is a change in consumer income. 
D)  many units of a good a consumer can buy given a certain income level.

Question 12

Suppose a market has the demand function Qd=20-0.5P. At which of the following prices will total revenue be maximized?

Accepted Answer

A)  $10 
B)  $20 
C)  $30 
D)  $40 
A)  $10 
B)  $20 
C)  $30 
D)  $40

Question 13

Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

Accepted Answer

A)  steeper the demand curve will be. 
B)  flatter the demand curve will be. 
C)  further to the right the demand curve will sit. 
D)  closer to the vertical axis the demand curve will sit. 
A)  steeper the demand curve will be. 
B)  flatter the demand curve will be. 
C)  further to the right the demand curve will sit. 
D)  closer to the vertical axis the demand curve will sit.

Question 14

Suppose demand is given by the equation:   At what price will total revenue be maximized?

Accepted Answer

Total revenue will be maximize

Question 15

A key determinant of the price elasticity of supply is the

Accepted Answer

A)  number of close substitutes for the good in question. 
B)  extent to which buyers alter their quantities demanded in response to changes in prices. 
C)  length of the time period. 
D)  extent to which buyers alter their quantities demanded in response to changes in their incomes. 
A)  number of close substitutes for the good in question. 
B)  extent to which buyers alter their quantities demanded in response to changes in prices. 
C)  length of the time period. 
D)  extent to which buyers alter their quantities demanded in response to changes in their incomes.

Question 16

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to

Accepted Answer

A)  increase the total revenue of wheat farmers. 
B)  decrease the total revenue of wheat farmers. 
C)  decrease the demand for wheat. 
D)  decrease the supply of wheat. 
A)  increase the total revenue of wheat farmers. 
B)  decrease the total revenue of wheat farmers. 
C)  decrease the demand for wheat. 
D)  decrease the supply of wheat.

Question 17

If the demand for donuts is elastic, then a decrease in the price of donuts will

Accepted Answer

A)  increase total revenue of donut sellers. 
B)  decrease total revenue of donut sellers. 
C)  not change total revenue of donut sellers. 
D)  There is not enough information to answer this question. 
A)  increase total revenue of donut sellers. 
B)  decrease total revenue of donut sellers. 
C)  not change total revenue of donut sellers. 
D)  There is not enough information to answer this question.

Question 18

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

Accepted Answer

A)  lower the price of the cinnamon rolls. 
B)  leave the price of the cinnamon rolls unchanged. 
C)  raise the price of the cinnamon rolls. 
D)  reduce costs. 
A)  lower the price of the cinnamon rolls. 
B)  leave the price of the cinnamon rolls unchanged. 
C)  raise the price of the cinnamon rolls. 
D)  reduce costs.

Question 19

Which of the following expressions represents a cross-price elasticity of demand?

Accepted Answer

A)  percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread 
B)  percentage change in quantity demanded of bread divided by percentage change in price of butter 
C)  percentage change in price of bread divided by percentage change in quantity demanded of bread 
D)  percentage change in quantity demanded of bread divided by percentage change in income 
A)  percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread 
B)  percentage change in quantity demanded of bread divided by percentage change in price of butter 
C)  percentage change in price of bread divided by percentage change in quantity demanded of bread 
D)  percentage change in quantity demanded of bread divided by percentage change in income

Question 20

In which of the following situations would supply be the most elastic?

Accepted Answer

A)  An auto parts manufacturer is operating at capacity. 
B)  A real estate developer in Boston is looking to build condos on the waterfront. 
C)  A furniture manufacturer is operating its factory 8 hours per day. 
D)  A hotel has all of its rooms booked for each night of the next 3 months. 
A)  An auto parts manufacturer is operating at capacity. 
B)  A real estate developer in Boston is looking to build condos on the waterfront. 
C)  A furniture manufacturer is operating its factory 8 hours per day. 
D)  A hotel has all of its rooms booked for each night of the next 3 months.

Exam 5: Elasticity and Its Application

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

On a downward-sloping linear demand curve, total revenue reaches its maximum value at the

Suppose the price elasticity of demand for a product is 1. If a supplier wants to increase revenue, what change should it make to price, if any?

Which of the following is likely to have the most price inelastic demand?

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be

Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by

Figure 5-12 -Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

Income elasticity of demand measures how

Suppose a market has the demand function Qd=20-0.5P. At which of the following prices will total revenue be maximized?

Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

Suppose demand is given by the equation: At what price will total revenue be maximized?

A key determinant of the price elasticity of supply is the

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to

If the demand for donuts is elastic, then a decrease in the price of donuts will

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

Which of the following expressions represents a cross-price elasticity of demand?

In which of the following situations would supply be the most elastic?

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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