Question 1

The price elasticity of supply measures how responsive

Accepted Answer

A)  sellers are to a change in price. 
B)  sellers are to a change in buyers' income. 
C)  buyers are to a change in production costs. 
D)  equilibrium price is to a change in supply. 
A)  sellers are to a change in price. 
B)  sellers are to a change in buyers' income. 
C)  buyers are to a change in production costs. 
D)  equilibrium price is to a change in supply.

Question 2

Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are

Accepted Answer

A)  substitutes, and have a cross-price elasticity of 0.60. 
B)  complements, and have a cross-price elasticity of -0.60. 
C)  substitutes, and have a cross-price elasticity of 1.67. 
D)  complements, and have a cross-price elasticity of -1.67. 
A)  substitutes, and have a cross-price elasticity of 0.60. 
B)  complements, and have a cross-price elasticity of -0.60. 
C)  substitutes, and have a cross-price elasticity of 1.67. 
D)  complements, and have a cross-price elasticity of -1.67.

Question 3

Suppose that 50 hot dogs are demanded at a particular price. If the price of hot dogs rises from that price by 5 percent, the number of hot dogs demanded falls to 48. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

Accepted Answer

A)  demand for hot dogs in this price range is unit elastic. 
B)  price increase will decrease the total revenue of hot dog sellers. 
C)  price elasticity of demand for hot dogs in this price range is about 1.22. 
D)  price elasticity of demand for hot dogs in this price range is about 0.82. 
A)  demand for hot dogs in this price range is unit elastic. 
B)  price increase will decrease the total revenue of hot dog sellers. 
C)  price elasticity of demand for hot dogs in this price range is about 1.22. 
D)  price elasticity of demand for hot dogs in this price range is about 0.82.

Question 4

If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the demand for chocolate is price elastic.

Accepted Answer

A) True 
 B)False

Question 5

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

Accepted Answer

A)  buyers tend to be much less sensitive to a change in price when given more time to react. 
B)  buyers tend to be much more sensitive to a change in price when given more time to react. 
C)  buyers will have substantially more real income over a ten-year period. 
D)  the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline. 
A)  buyers tend to be much less sensitive to a change in price when given more time to react. 
B)  buyers tend to be much more sensitive to a change in price when given more time to react. 
C)  buyers will have substantially more real income over a ten-year period. 
D)  the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

Question 6

Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is

Accepted Answer

A)  positive, so Joan considers hamburger to be an inferior good. 
B)  positive, so Joan considers hamburger to be a normal good and a necessity. 
C)  negative, so Joan considers hamburger to be an inferior good. 
D)  negative, so Joan considers hamburger to be a normal good but not a necessity. 
A)  positive, so Joan considers hamburger to be an inferior good. 
B)  positive, so Joan considers hamburger to be a normal good and a necessity. 
C)  negative, so Joan considers hamburger to be an inferior good. 
D)  negative, so Joan considers hamburger to be a normal good but not a necessity.

Question 7

If demand is price inelastic, then

Accepted Answer

A)  buyers do not respond much to a change in price. 
B)  buyers respond substantially to a change in price, but the response is very slow. 
C)  buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes. 
D)  the demand curve is very flat. 
A)  buyers do not respond much to a change in price. 
B)  buyers respond substantially to a change in price, but the response is very slow. 
C)  buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes. 
D)  the demand curve is very flat.

Question 8

The income elasticity of demand for caviar tends to be

Accepted Answer

A)  high because caviar is relatively expensive. 
B)  low because caviar is packaged in small containers. 
C)  high because buyers generally feel that they can do without it. 
D)  low because it is almost always in short supply. 
A)  high because caviar is relatively expensive. 
B)  low because caviar is packaged in small containers. 
C)  high because buyers generally feel that they can do without it. 
D)  low because it is almost always in short supply.

Question 9

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

Accepted Answer

A)  demand for ice cream cones in this price range is elastic. 
B)  demand for ice cream cones in this price range is inelastic. 
C)  demand for ice cream cones in this price range is unit elastic. 
D)  price elasticity of demand for ice cream cones in this price range is 0. 
A)  demand for ice cream cones in this price range is elastic. 
B)  demand for ice cream cones in this price range is inelastic. 
C)  demand for ice cream cones in this price range is unit elastic. 
D)  price elasticity of demand for ice cream cones in this price range is 0.

Question 10

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

Accepted Answer

A)  lattés 
B)  filet mignon 
C)  Grey Goose® vodka 
D)  milk 
A)  lattés 
B)  filet mignon 
C)  Grey Goose® vodka 
D)  milk

Question 11

Which of the following statements is not valid when supply is perfectly elastic?

Accepted Answer

A)  The elasticity of supply approaches infinity. 
B)  The supply curve is horizontal. 
C)  Very small changes in price lead to very large changes in quantity supplied. 
D)  The time period under consideration is more likely a short period rather than a long period. 
A)  The elasticity of supply approaches infinity. 
B)  The supply curve is horizontal. 
C)  Very small changes in price lead to very large changes in quantity supplied. 
D)  The time period under consideration is more likely a short period rather than a long period.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Which of the following expressions is valid for the price elasticity of demand?

Accepted Answer

A)  Price elasticity of demand =  
B)  Price elasticity of demand =  . 
C)  Price elasticity of demand =  . 
D)  Price elasticity of demand =  
A)  Price elasticity of demand =  
B)  Price elasticity of demand =  . 
C)  Price elasticity of demand =  . 
D)  Price elasticity of demand =

Question 14

Which of the following expressions can be used to compute the price elasticity of demand?

Accepted Answer

A)  Price elasticity of demand =  • . 
B)  Price elasticity of demand =  . 
C)  Price elasticity of demand =   
D)  Price elasticity of demand =  
A)  Price elasticity of demand =  • . 
B)  Price elasticity of demand =  . 
C)  Price elasticity of demand =   
D)  Price elasticity of demand =

Question 15

A decrease in supply will cause the smallest increase in price when

Accepted Answer

A)  both supply and demand are inelastic. 
B)  demand is elastic and supply is inelastic. 
C)  both supply and demand are elastic. 
D)  demand is inelastic and supply is elastic. 
A)  both supply and demand are inelastic. 
B)  demand is elastic and supply is inelastic. 
C)  both supply and demand are elastic. 
D)  demand is inelastic and supply is elastic.

Question 16

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

Accepted Answer

A)  The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. 
B)  The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. 
C)  The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. 
D)  The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers. 
A)  The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. 
B)  The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. 
C)  The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. 
D)  The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

Question 17

If the income elasticity of demand for a good is 0.56, is the good a normal or inferior good?

Accepted Answer

The good i

Question 18

Suppose good X has a negative income elasticity of demand. This implies that good X is

Accepted Answer

A)  a normal good. 
B)  a necessity. 
C)  an inferior good. 
D)  a luxury. 
A)  a normal good. 
B)  a necessity. 
C)  an inferior good. 
D)  a luxury.

Question 19

Refer to Figure 5-5. Using the midpoint method, between prices of $70 and $80, price elasticity of demand is

Accepted Answer

A)  0.33. 
B)  0.4. 
C)  1.33. 
D)  3. 
A)  0.33. 
B)  0.4. 
C)  1.33. 
D)  3.

Question 20

Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time horizon.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

The price elasticity of supply measures how responsive

Suppose that 50 hot dogs are demanded at a particular price. If the price of hot dogs rises from that price by 5 percent, the number of hot dogs demanded falls to 48. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the demand for chocolate is price elastic.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is

If demand is price inelastic, then

The income elasticity of demand for caviar tends to be

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

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

Which of the following statements is not valid when supply is perfectly elastic?

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

Which of the following expressions is valid for the price elasticity of demand?

Which of the following expressions can be used to compute the price elasticity of demand?

A decrease in supply will cause the smallest increase in price when

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

If the income elasticity of demand for a good is 0.56, is the good a normal or inferior good?

Suppose good X has a negative income elasticity of demand. This implies that good X is

Refer to Figure 5-5. Using the midpoint method, between prices of $70 and $80, price elasticity of demand is

Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time horizon.

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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