Question 1

Last year,Sheila bought 6 pairs of shoes when her income was $40,000.This year,her income is $50,000 and she purchased 10 pairs of shoes.Holding other factors constant,it follows that Sheila

Accepted Answer

A) considers shoes to be a necessity. 
B) considers shoes to be an inferior good. 
C) considers shoes to be a normal good. 
D) has a low price elasticity of demand for shoes.

Question 2

The flatter the demand curve through a given point,the

Accepted Answer

A) greater the price elasticity of demand at that point. 
B) smaller the price elasticity of demand at that point. 
C) closer the price elasticity of demand will be to the slope of the curve. 
D) greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.

Question 3

Get Smart University is contemplating an increase in tuition to enhance revenue.If GSU feels that raising tuition would enhance revenue,they are

Accepted Answer

A) ignoring the law of demand. 
B) assuming that the demand for university education is elastic. 
C) assuming that the demand for university education is inelastic. 
D) assuming that the supply of university education is elastic.

Question 4

Figure 5-11
 
-Refer to Figure 5-11.Which supply curve is most likely relevant over a very long period of time?

Accepted Answer

A) S₁ 
B) S₂ 
C) S₃ 
D) All of the above are equally likely to be relevant over a very long period of time.

Question 5

When demand is unit elastic,price elasticity of demand

Accepted Answer

A) equals 1 and total revenue and price move in the same direction. 
B) equals 1 and total revenue and price move in opposite directions. 
C) equals 1 and total revenue does not change when price changes. 
D) equals 0 and total revenue does not change when price changes.

Question 6

Figure 5-1
 
-Refer to Figure 5-1.Assume the section of the demand curve labeled C corresponds to prices between $0 and $15.Then,when the price changes between $7 and $9,

Accepted Answer

A) quantity demanded changes proportionately less than the price. 
B) quantity demanded changes proportionately more than the price. 
C) quantity demanded changes the same amount proportionately as price. 
D) the price elasticity of demand is greater than 1.

Question 7

If corn farmers know that the demand for corn is inelastic,and they want to increase their total revenue,they should all

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 they plant in corn. 
D) contribute to a fund that promotes technological advances in corn production.

Question 8

A bakery would be willing to supply 500 bagels per day at a price of $0.50 each.At a price of $0.80,the bakery would be willing to supply 1,100 bagels.Using the midpoint method,the elasticity of supply for bagels is about

Accepted Answer

A) 0.62. 
B) 0.77. 
C) 1.24. 
D) 1.63.

Question 9

Use the graph shown to answer the following questions.Put the correct letter in the blank.
  
a.The elastic section of the graph is represented by section _______.
b.The inelastic section of the graph is represented by section _______.
c.The unit elastic section of the graph is represented by section _______.
d.The portion of the graph in which a decrease in price would cause total revenue to fall would be _________.
e.The portion of the graph in which a decrease in price would cause total revenue to rise would be _________.
f.The portion of the graph in which a decrease in price would not cause a change in total revenue would be _________.
g.The section of the graph in which total revenue would be at a maximum would be _______.
h.The section of the graph in which elasticity is greater than 1 is _______.
i.The section of the graph in which elasticity is equal to 1 is ______.
j.The section of the graph in which elasticity is less than 1 is _______.

Accepted Answer

The answer of Use the graph shown to answer the...

Question 10

If two goods are substitutes,their cross-price elasticity will be

Accepted Answer

A) positive. 
B) negative. 
C) zero. 
D) equal to the difference between the income elasticities of demand for the two goods.

Question 11

When demand is inelastic,a decrease in price will cause

Accepted Answer

A) an increase in total revenue. 
B) a decrease in total revenue. 
C) no change in total revenue, but an increase in quantity demanded. 
D) no change in total revenue, but a decrease in quantity demanded.

Question 12

If an increase in the price of a good results in an increase in total revenue for the firm,then the supply of the good must be

Accepted Answer

A) unit elastic. 
B) inelastic. 
C) elastic. 
D) Nothing can be said about price elasticity of supply from the information given.

Question 13

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Accepted Answer

A) Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept. 
B) Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept. 
C) Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage. 
D) Without elasticity, it is very difficult to assess the degree of competition within a market.

Question 14

When the price of kittens was $25 each,the pet shop sold 20 per month.When they raised the price to $35 each,they sold 14 per month.The price elasticity of demand for kittens is about

Accepted Answer

A) 1.66. 
B) 1.06. 
C) 0.94. 
D) 0.60.

Question 15

If the price elasticity of demand for a good is 1.65,then a 3 percent decrease in price results in a

Accepted Answer

A) 0.55 percent increase in the quantity demanded. 
B) 1.82 percent increase in the quantity demanded. 
C) 4.95 percent increase in the quantity demanded. 
D) 5.55 percent increase in the quantity demanded.

Question 16

Barb's Bakery earned $200 in total revenue last month when it sold 100 loaves of bread.This month it earned $300 in total revenue when it sold 60 loaves of bread.The price elasticity of demand for Barb's bread is

Accepted Answer

A) 0.27. 
B) 0.58. 
C) 1.25. 
D) 1.71.

Question 17

Consider the following pairs of goods.For which of the two goods would you expect the demand to be more price elastic? Why?
a.water or diamonds
b.insulin or nasal decongestant spray
c.food in general or breakfast cereal
d.gasoline over the course of a week or gasoline over the course of a year
e.personal computers or IBM personal computers

Accepted Answer

The answer of Consider the following pairs of goods.For which...

Question 18

The cross-price elasticity of demand can tell us whether goods are

Accepted Answer

A) normal or inferior. 
B) elastic or inelastic. 
C) luxuries or necessities. 
D) complements or substitutes.

Question 19

When supply is perfectly elastic,the value of the price elasticity of supply is

Accepted Answer

A) 0. 
B) 1. 
C) greater than 0 and less than 1. 
D) infinity.

Question 20

There are fewer farmers in the United States today than 200 years ago because of

Accepted Answer

A) more educational opportunities and increases in farm technology. 
B) increased government regulations in farming and increased farm technology. 
C) an elastic demand for food and more attractive urban alternatives to farming. 
D) increases in farm technology and an inelastic demand for food.

Exam 5: Elasticity and Its Applications