Question 1

The elasticity of demand measures:

Accepted Answer

A)   the height of the demand curve.
B)   how sensitive the quantity demanded is to a change in price.
C)   how sensitive the price is to a change in demand.
D)   the extent to which demand shifts in response to supply changes. B

Question 2

Why do supply curves tend to be more elastic over time?

Accepted Answer

A)   Sellers have time to adjust and increase production.
B)   Consumers have time to look for substitutes for the good.
C)   Consumers have time to reduce their consumption of the good.
D)   All of the answers are correct. A

Question 3

If the price elasticity of demand is 2 in absolute value, then when the price of Good X rises by 25 percent:

Accepted Answer

A)   the quantity demanded of Good X rises by 50 percent.
B)   the quantity demanded of Good X falls by 50 percent.
C)   the quantity demanded of Good X rises by 12.5 percent.
D)   the quantity demanded of Good X falls by 12.5 percent. B

Question 4

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will:

Accepted Answer

A)   increase revenue for the computer chip industry and make computers a larger share of the American economy.
B)   increase revenue for the computer chip industry and make computers a smaller share of the American economy.
C)   decrease revenue for the computer chip industry and make computers a larger share of the American economy.
D)   decrease revenue for the computer chip industry and make computers a smaller share of the American economy.

Question 5

The elasticity of demand measures how sensitive the:

Accepted Answer

A)   price is to a change in quantity demanded.
B)   quantity demanded is to a change in price.
C)   price is to a change in the quantity supplied.
D)   demand is to a change in the number of suppliers.

Question 6

If the price of Good X rises from $4 to $5, and the quantity demanded of Good X falls from 200 units to 180 units, the price elasticity of demand is:

Accepted Answer

A)   2.1.
B)   0.47.
C)   1.4.
D)   0.4.

Question 7

If the supply of raw materials is ________, increasing their production leads to ________ per-unit costs.

Accepted Answer

A)   inelastic; higher
B)   perfectly elastic; higher
C)   perfectly elastic; lower
D)   inelastic; lower

Question 8

If the demand curve is inelastic a price ________ causes a(n) ________ in revenues.

Accepted Answer

A)   decrease; decrease
B)   decrease; increase
C)   increase; decrease
D)   There is not enough information to answer.

Question 9

Farmers can produce more milk at lower cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is:

Accepted Answer

A)   elastic.
B)   inelastic.
C)   unit elastic.
D)   unaffected by elasticity.

Question 10

A perfectly inelastic supply curve is a:

Accepted Answer

A)   vertical line indicating that a very large increase in price will increase the quantity supplied.
B)   vertical line indicating that even a very large increase in price won't increase the quantity supplieB.
C)   horizontal line indicating that a very small increase in price will increase the quantity supplieC.
D)   horizontal line indicating that even a very small increase in price won't increase the quantity supplied.

Question 11

(Figure: Midpoint Formula) Refer to the figure. Based on the midpoint formula, what is the elasticity of demand between $40 and $60?

Accepted Answer

A)   1.25.
B)   2.5.
C)   0.75.
D)   4/5.

Question 12

The demand curve for oil is inelastic, meaning that the quantity of oil demanded:

Accepted Answer

A)   rises by a lot even when the price of oil increases by only a little.
B)   rises by only a little even when the price of oil increases by a lot.
C)   falls by a lot even when the price of oil increases by only a little.
D)   falls by only a little even when the price of oil increases by a lot.

Question 13

Accepted Answer

A)   greater than the change in quantity demanded for D2 so D1 is more elastic than D2.
B)   greater than the change in quantity demanded for D2 so D2 is more elastic than D1.
C)   less than the change in quantity demanded for D2 so D1 is more inelastic than D2.
D)   less than the change in quantity demanded for D2 so D2 is more inelastic than D1.

Question 14

The elasticity of supply measures how sensitive the supply curve is to a change in price.

Accepted Answer

A) True 
 B)False

Question 15

(Table: Elasticities of Good X) Refer to the table. From the information in the table, what can you say about good X? In particular, is the demand for Good X rather elastic or inelastic? What does this imply about the number of substitutes that exist for Good X? Does Good Y appear to be a substitute for Good X? Does Good X appear to be a normal or inferior good? Finally, is the elasticity of supply for Good X relatively elastic or inelastic?

Accepted Answer

The answer of (Table: Elasticities of Good X) Refer to...

Question 16

If the price elasticity of demand for a product is 2 in absolute value, and the price elasticity of supply for the same product is 1, what is the predicted percent change in price from a 5 percent fall in the supply?

Accepted Answer

A)   a 1.67 percent fall in price
B)   a 1.67 percent rise in price
C)   a 0.6 percent fall in price
D)   a 0.6 percent rise in price

Question 17

The demand for oil would become less elastic if the price of oil increases by a significant amount for a long period of time.

Accepted Answer

A) True 
 B)False

Question 18

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent:

Accepted Answer

A)   the quantity supplied of Good X rises by 7.5 percent.
B)   the quantity supplied of Good X rises by 133 percent.
C)   the quantity supplied of Good X falls by 7.5 percent.
D)   the quantity supplied of Good X falls by 133 percent.

Question 19

Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income elasticity of demand for steaks.

Accepted Answer

A)   -1
B)   1
C)   -12.5
D)   12.5

Question 20

(Figure: Elasticity of Swim Trunks) The demand for swim trunks appears in the figure. What is the elasticity of demand for swim trunks? Suppose that your swimwear business is currently overstocked with swim trunks. If you want to sell 18 percent more swim trunks, how much should you cut your price? Figure: Elasticity of Swim Trunks

Accepted Answer

The answer of (Figure: Elasticity of Swim Trunks) The demand...

Exam 5: Elasticity and Its Applications