Question 1

Alice says that she likes banana splits, but if the price changed, she would not buy them anymore. If this is the case:

Accepted Answer

A)   Alice's demand for banana splits is perfectly inelastic
B)   Alice's price elasticity of demand for banana splits is one
C)   Alice's income elasticity of demand for banana splits is negative
D)   Alice's demand for banana splits is perfectly elastic A

Question 2

Suppose that an increase in the price of jumping castles from $650 to $850 prompts party shops to increase the quantity of these jumping castles that they offer from 80 to 320. Using the midpoint method, what would be the elasticity of supply?

Accepted Answer

A)   0.50
B)   0.24
C)   0.34
D)   1.08 B

Question 3

If the demand curve is linear and downward-sloping, which of the following would NOT be correct?

Accepted Answer

A)   the upper part of the demand curve is more elastic than the lower part
B)   elasticity will change with a movement down the curve
C)   the lower part of the demand curve will be less elastic than the upper part
D)   elasticity and slope will both remain constant along the curve D

Question 4

Suppose the government increases the tax on petrol in order to raise revenue. Since raising the petrol tax would increase the price of petrol, the government must be assuming that the:

Accepted Answer

A)   demand for petrol is price elastic
B)   demand for petrol is price inelastic
C)   demand for petrol is price unit elastic
D)   tax on petrol will not affect the consumption of petrol

Question 5

The demand for a good is said to be elastic if a small price decrease leads to a substantial increase in the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that 50 candy bars are demanded at a particular price. Using the midpoint method, if the price of candy bars rises by four per cent, the number of candy bars demanded falls to 48 candy bars. This means that the:

Accepted Answer

A)   demand for candy bars in this price range is elastic
B)   demand for candy bars in this price range is inelastic
C)   price elasticity of demand for candy bars is zero
D)   demand for candy bars is unit elastic

Question 7

Coffee and tea are likely to have:

Accepted Answer

A)   a negative cross-price elasticity of demand because they are substitutes
B)   a negative cross-price elasticity of demand because they are complements
C)   a positive cross-price elasticity of demand because they are substitutes
D)   a positive cross-price elasticity of demand because they are complements

Question 8

The price elasticity of demand for toasted muesli would increase if:

Accepted Answer

A)   there was an increase in complements for toasted muesli
B)   the definition of the toasted muesli market was made very broad
C)   toasted muesli was considered a luxury product
D)   the effect of a price rise was measured over a long period of time

Question 9

A vertical supply curve signifies that:

Accepted Answer

A)   a change in price will have no effect on quantity supplied
B)   a change in price will change quantity supplied in the opposite direction
C)   an infinite quantity will be supplied at a given price
D)   the relationship between price and quantity supplied is inverse

Question 10

The Conservation Reserve Program pays farmers to take out of production highly erodible land. How will this program affect farm income and the wellbeing of consumers?

Accepted Answer

The answer of The Conservation Reserve Program pays farmers to...

Question 11

If an increase in income results in a decrease in the quantity demanded of a good, then the good is:

Accepted Answer

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

Question 12

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Accepted Answer

A) True 
 B)False

Question 13

Using the midpoint method, compute the elasticity of demand between points A and
B. Is this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and
C. Is this portion of the curve elastic or inelastic?

Accepted Answer

The answer of Using the midpoint method, compute the elasticity...

Question 14

In the 1970s OPEC generated high prices for oil but could not sustain this in the mid-80s and 90s. The reason was that both the supply and demand elasticity for oil is less elastic in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 15

What is the price elasticity of supply?

Accepted Answer

The answer of What is the price elasticity of supply?...

Question 16

If the quantity supplied of a good responds strongly to a change in the price of an input:

Accepted Answer

A)   the price elasticity of demand is inelastic
B)   the income elasticity of supply is inelastic
C)   the income elasticity of supply is elastic
D)   the price elasticity of supply is elastic

Question 17

If the price of forest-products rises, the price elasticity of supply will be more responsive in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 18

If a good is a necessity, demand for the good would tend to be:

Accepted Answer

A)   elastic
B)   unit elastic
C)   inelastic
D)   horizontal

Question 19

In the long run, the quantity supplied of most goods:

Accepted Answer

A)   can respond substantially to a change in price
B)   cannot respond much to a change in price
C)   cannot respond at all to a change in price
D)   will naturally increase regardless of what happens to price

Question 20

In general, a firm will be able to generate the greatest response to a price increase:

Accepted Answer

A)   just after the change
B)   after three years
C)   in the months following the change
D)   around one week after the change

Exam 5: Elasticity and Its Application

Alice says that she likes banana splits, but if the price changed, she would not buy them anymore. If this is the case:

Suppose that an increase in the price of jumping castles from $650 to $850 prompts party shops to increase the quantity of these jumping castles that they offer from 80 to 320. Using the midpoint method, what would be the elasticity of supply?

If the demand curve is linear and downward-sloping, which of the following would NOT be correct?

Suppose the government increases the tax on petrol in order to raise revenue. Since raising the petrol tax would increase the price of petrol, the government must be assuming that the:

The demand for a good is said to be elastic if a small price decrease leads to a substantial increase in the quantity demanded.

Suppose that 50 candy bars are demanded at a particular price. Using the midpoint method, if the price of candy bars rises by four per cent, the number of candy bars demanded falls to 48 candy bars. This means that the:

Coffee and tea are likely to have:

The price elasticity of demand for toasted muesli would increase if:

A vertical supply curve signifies that:

The Conservation Reserve Program pays farmers to take out of production highly erodible land. How will this program affect farm income and the wellbeing of consumers?

If an increase in income results in a decrease in the quantity demanded of a good, then the good is:

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

In the 1970s OPEC generated high prices for oil but could not sustain this in the mid-80s and 90s. The reason was that both the supply and demand elasticity for oil is less elastic in the short run than in the long run.

What is the price elasticity of supply?

If the quantity supplied of a good responds strongly to a change in the price of an input:

If the price of forest-products rises, the price elasticity of supply will be more responsive in the long run than in the short run.

If a good is a necessity, demand for the good would tend to be:

In the long run, the quantity supplied of most goods:

In general, a firm will be able to generate the greatest response to a price increase: