Question 1

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Accepted Answer

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

Question 2

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 3

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 4

The price elasticity of demand changes as we move along a

Accepted Answer

A)  horizontal demand curve. 
B)  vertical demand curve. 
C)  linear, downward-sloping demand curve. 
D)  All of the above are correct. 
A)  horizontal demand curve. 
B)  vertical demand curve. 
C)  linear, downward-sloping demand curve. 
D)  All of the above are correct.

Question 5

Figure 5-8  
-Refer to Figure 5-8. An increase in price from $15 to $20 would

Accepted Answer

A)  increase total revenue by $500 
B)  decrease total revenue by $500. 
C)  increase total revenue by $1,000. 
D)  decrease total revenue by $1,000. 
A)  increase total revenue by $500 
B)  decrease total revenue by $500. 
C)  increase total revenue by $1,000. 
D)  decrease total revenue by $1,000.

Question 6

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

Accepted Answer

A)  fall by 8 percent. 
B)  fall by 50 percent. 
C)  rise by 8 percent. 
D)  rise by 50 percent. 
A)  fall by 8 percent. 
B)  fall by 50 percent. 
C)  rise by 8 percent. 
D)  rise by 50 percent.

Question 7

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

Accepted Answer

A)  higher prices and higher total revenue from marijuana sales. 
B)  higher prices but lower total revenue from marijuana sales. 
C)  the same price and higher total revenue from marijuana sales. 
D)  the same price but lower total revenue from marijuana sales. 
A)  higher prices and higher total revenue from marijuana sales. 
B)  higher prices but lower total revenue from marijuana sales. 
C)  the same price and higher total revenue from marijuana sales. 
D)  the same price but lower total revenue from marijuana sales.

Question 8

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 9

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price elastic demand?

Accepted Answer

The answer of Suppose that good X is a luxury...

Question 10

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

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

Question 11

Table 5-3
Consider the following demand schedule.  
-Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand between $0 and $3?

Accepted Answer

A)  0.11 
B)  0.22 
C)  0.40 
D)  2.00 
A)  0.11 
B)  0.22 
C)  0.40 
D)  2.00

Question 12

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a

Accepted Answer

A)  0.1 percent increase in the quantity demanded. 
B)  1 percent increase in the quantity demanded. 
C)  3 percent increase in the quantity demanded. 
D)  4 percent increase in the quantity demanded. 
A)  0.1 percent increase in the quantity demanded. 
B)  1 percent increase in the quantity demanded. 
C)  3 percent increase in the quantity demanded. 
D)  4 percent increase in the quantity demanded.

Question 13

How does total revenue change as one moves downward and to the right along a linear demand curve?

Accepted Answer

A)  It always increases. 
B)  It always decreases. 
C)  It first increases, then decreases. 
D)  It is unaffected by a movement along the demand curve. 
A)  It always increases. 
B)  It always decreases. 
C)  It first increases, then decreases. 
D)  It is unaffected by a movement along the demand curve.

Question 14

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, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000?

Accepted Answer

A)  0.00 
B)  0.50 
C)  1.00 
D)  1.50 
A)  0.00 
B)  0.50 
C)  1.00 
D)  1.50

Question 15

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

Accepted Answer

A)  elastic, and the demand curve will be horizontal. 
B)  inelastic, and the demand curve will be horizontal. 
C)  elastic, and the demand curve will be vertical. 
D)  inelastic, and the demand curve will be vertical. 
A)  elastic, and the demand curve will be horizontal. 
B)  inelastic, and the demand curve will be horizontal. 
C)  elastic, and the demand curve will be vertical. 
D)  inelastic, and the demand curve will be vertical.

Question 16

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about

Accepted Answer

A)  1.33, and supply is elastic. 
B)  1.33, and supply is inelastic. 
C)  0.75, and supply is elastic. 
D)  0.75, and supply is inelastic. 
A)  1.33, and supply is elastic. 
B)  1.33, and supply is inelastic. 
C)  0.75, and supply is elastic. 
D)  0.75, and supply is inelastic.

Question 17

The value of the price elasticity of demand for a good will be relatively large when

Accepted Answer

A)  there are no good substitutes available for the good. 
B)  the time period in question is relatively short. 
C)  the good is a luxury rather than a necessity. 
D)  All of the above are correct. 
A)  there are no good substitutes available for the good. 
B)  the time period in question is relatively short. 
C)  the good is a luxury rather than a necessity. 
D)  All of the above are correct.

Question 18

Figure 5-7  
-Refer to Figure 5-7. For prices above $5, demand is price

Accepted Answer

A)  elastic, and raising price will increase total revenue. 
B)  inelastic, and raising price will increase total revenue. 
C)  elastic, and lowering price will increase total revenue. 
D)  inelastic, and lowering price will increase total revenue. 
A)  elastic, and raising price will increase total revenue. 
B)  inelastic, and raising price will increase total revenue. 
C)  elastic, and lowering price will increase total revenue. 
D)  inelastic, and lowering price will increase total revenue.

Question 19

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

Accepted Answer

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

Question 20

Demand is elastic if the price elasticity of demand is

Accepted Answer

A)  less than 1. 
B)  equal to 1. 
C)  equal to 0. 
D)  greater than 1. 
A)  less than 1. 
B)  equal to 1. 
C)  equal to 0. 
D)  greater than 1.

Exam 5: Elasticity and Its Application

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

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

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

The price elasticity of demand changes as we move along a

Figure 5-8 -Refer to Figure 5-8. An increase in price from $15 to $20 would

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

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

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price elastic demand?

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Table 5-3 Consider the following demand schedule. -Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand between $0 and $3?

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a

How does total revenue change as one moves downward and to the right along a linear demand curve?

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, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000?

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about

The value of the price elasticity of demand for a good will be relatively large when

Figure 5-7 -Refer to Figure 5-7. For prices above $5, demand is price

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

Demand is elastic if the price elasticity of demand is

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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