Question 1

Suppose demand is given by the equation:   Using the midpoint method, what is the price elasticity of demand between $7 and $8?

Accepted Answer

The price

Question 2

For which of the following goods is the income elasticity of demand likely highest?

Accepted Answer

A)  water 
B)  diamonds 
C)  hamburgers 
D)  housing 
A)  water 
B)  diamonds 
C)  hamburgers 
D)  housing

Question 3

Figure 5-5  
-Refer to Figure 5-5. At a price of $70 per unit, sellers' total revenue equals

Accepted Answer

A)  $700. 
B)  $1050. 
C)  $1250. 
D)  $1400. 
A)  $700. 
B)  $1050. 
C)  $1250. 
D)  $1400.

Question 4

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 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

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 7

The price elasticity of supply along a typical supply curve is

Accepted Answer

A)  constant. 
B)  equal to zero. 
C)  higher at low levels of quantity supplied and lower at high levels of quantity supplied. 
D)  lower at low levels of quantity supplied and higher at high levels of quantity supplied. 
A)  constant. 
B)  equal to zero. 
C)  higher at low levels of quantity supplied and lower at high levels of quantity supplied. 
D)  lower at low levels of quantity supplied and higher at high levels of quantity supplied.

Question 8

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 9

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy's cross-price elasticity of demand for beans and rice is

Accepted Answer

A)  0.71, and they are substitutes. 
B)  -0.71, and they are complements. 
C)  1.4, and they are substitutes. 
D)  -1.4, and they are complements. 
A)  0.71, and they are substitutes. 
B)  -0.71, and they are complements. 
C)  1.4, and they are substitutes. 
D)  -1.4, and they are complements.

Question 10

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should

Accepted Answer

A)  plant more corn so that they would be able to sell more each year. 
B)  increase spending on fertilizer in an attempt to produce more corn on the acres they farm. 
C)  reduce the number of acres on which they plant corn. 
D)  contribute to a fund that promotes technological advances in corn production. 
A)  plant more corn so that they would be able to sell more each year. 
B)  increase spending on fertilizer in an attempt to produce more corn on the acres they farm. 
C)  reduce the number of acres on which they plant corn. 
D)  contribute to a fund that promotes technological advances in corn production.

Question 11

If the demand for textbooks is inelastic, then a decrease in the price of textbooks will

Accepted Answer

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

Question 12

For which pairs of goods is the cross-price elasticity most likely to be positive?

Accepted Answer

A)  peanut butter and jelly 
B)  bicycle frames and bicycle tires 
C)  pens and pencils 
D)  college textbooks and iPods 
A)  peanut butter and jelly 
B)  bicycle frames and bicycle tires 
C)  pens and pencils 
D)  college textbooks and iPods

Question 13

For which of the following goods would demand be most price elastic: a car, a sedan, a Honda sedan, a Honda Accord, a black Honda Accord?

Accepted Answer

a black Ho

Question 14

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 15

If the price elasticity of demand for a good is 0.3, then a 20 percent decrease in price results in a

Accepted Answer

A)  0.015 percent increase in the quantity demanded. 
B)  0.6 percent increase in the quantity demanded. 
C)  6 percent increase in the quantity demanded. 
D)  66 percent increase in the quantity demanded. 
A)  0.015 percent increase in the quantity demanded. 
B)  0.6 percent increase in the quantity demanded. 
C)  6 percent increase in the quantity demanded. 
D)  66 percent increase in the quantity demanded.

Question 16

A good will have a more inelastic demand, the

Accepted Answer

A)  greater the availability of close substitutes. 
B)  broader the definition of the market. 
C)  longer the period of time. 
D)  more it is regarded as a luxury. 
A)  greater the availability of close substitutes. 
B)  broader the definition of the market. 
C)  longer the period of time. 
D)  more it is regarded as a luxury.

Question 17

Holding all other forces constant, if increasing the price of a good leads to an increase in total revenue, then the demand for the good must be

Accepted Answer

A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct because a price increase always leads to an increase in total revenue. 
A)  unit elastic. 
B)  inelastic. 
C)  elastic. 
D)  None of the above is correct because a price increase always leads to an increase in total revenue.

Question 18

If the cross-price elasticity of demand between two goods is positive, what is the relationship between the two goods?

Accepted Answer

The goods

Question 19

For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A)  There are many close substitutes for this good. 
B)  The good is a luxury. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is long. 
A)  There are many close substitutes for this good. 
B)  The good is a luxury. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is long.

Question 20

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

Suppose demand is given by the equation: Using the midpoint method, what is the price elasticity of demand between $7 and $8?

For which of the following goods is the income elasticity of demand likely highest?

Figure 5-5 -Refer to Figure 5-5. At a price of $70 per unit, sellers' total revenue equals

The income elasticity of demand for caviar tends to be

Which of the following statements is correct?

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

The price elasticity of supply along a typical supply curve is

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?

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy's cross-price elasticity of demand for beans and rice is

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should

If the demand for textbooks is inelastic, then a decrease in the price of textbooks will

For which pairs of goods is the cross-price elasticity most likely to be positive?

For which of the following goods would demand be most price elastic: a car, a sedan, a Honda sedan, a Honda Accord, a black Honda Accord?

If the price elasticity of demand for a good is 0.3, then a 20 percent decrease in price results in a

A good will have a more inelastic demand, the

Holding all other forces constant, if increasing the price of a good leads to an increase in total revenue, then the demand for the good must be

If the cross-price elasticity of demand between two goods is positive, what is the relationship between the two goods?

For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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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