Question 1

If the cross-price elasticity of demand for two goods is negative,then the two goods are substitutes.

Accepted Answer

A) True 
 B)False

Question 2

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 price elasticity of supply for bagels is

Accepted Answer

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

Question 3

Drug interdiction,which reduces the supply of drugs,may decrease drug-related crime because the demand for drugs is inelastic.

Accepted Answer

A) True 
 B)False

Question 4

Table 5-1
 
-Studies indicate that the price elasticity of demand for cigarettes is about 0.4.A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.According to the midpoint method,the government policy should have reduced smoking by

Accepted Answer

A)  30%. 
B)  40%. 
C)  80%. 
D)  250%.

Question 5

When her income increased from $10,000 to $20,000,Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds.We can conclude that for Heather,

Accepted Answer

A)  macaroni and soy-burgers are both normal goods with income elasticities equal to 1. 
B)  macaroni is an inferior good and soy-burgers are normal goods;both have income elasticities of 1. 
C)  macaroni is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1. 
D)  macaroni and soy-burgers are both inferior goods with income elasticities equal to -1.

Question 6

A 10 percent increase in gasoline prices reduces gasoline consumption by about

Accepted Answer

A)  6 percent after one year and 2.5 percent after five years. 
B)  2.5 percent after one year and 6 percent after five years. 
C)  10 percent after one year and 20 percent after five years. 
D)  0 percent after one year and 1 percent after five years.

Question 7

The smaller the price elasticity of demand,the

Accepted Answer

A)  steeper the demand curve will be through a given point. 
B)  flatter the demand curve will be through a given point. 
C)  more strongly buyers respond to a change in price between any two prices P1 and P2. 
D)  smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

Question 8

For which of the following goods is demand probably most inelastic?

Accepted Answer

A)  camcorders 
B)  insulin 
C)  apples 
D)  devices that remove cores from apples

Question 9

Suppose that when the price rises by 20% for a particular good,the quantity demanded of that good falls by 10%.The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

A) True 
 B)False

Question 10

Figure 5-13 
-Refer to Figure 5-13.Using the midpoint method,what is the price elasticity of supply between points A and B?

Accepted Answer

A)  2.33 
B)  1.0 
C)  0.43 
D)  0.1

Question 11

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a major shoe store.The first step you would take would be to

Accepted Answer

A)  increase the price of every shoe in the store. 
B)  look for ways to cut costs and increase profit for the store. 
C)  determine the price elasticity of demand for the store's products. 
D)  determine the price elasticity of supply for the store's products.

Question 12

Figure 5-4 
-Refer to Figure 5-4.Assume the section of the demand curve from A to B corresponds to prices between $8 and $16.Then,when the price changes between $9 and $10,

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 equals 1.

Question 13

Scenario 5-1
The supply of aged cheddar cheese is inelastic and the supply of bread is elastic.Both goods are considered to be normal goods by a majority of consumers.Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-1.The price elasticity of supply for bread could be

Accepted Answer

A)  -1. 
B)  0 
C)  0.5 
D)  1.5.

Question 14

For a good that is a necessity,demand

Accepted Answer

A)  tends to be inelastic. 
B)  tends to be elastic. 
C)  has unit elasticity. 
D)  cannot be represented by a demand curve in the usual way.

Question 15

Muriel's income elasticity of demand for football tickets is 1.50.All else equal,this means that if her income increases by 20 percent,she will buy

Accepted Answer

A)  150 percent more football tickets. 
B)  50 percent more football tickets. 
C)  30 percent more football tickets. 
D)  20 percent more football tickets.

Question 16

Holding all other forces constant,if decreasing 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,since a price increase always leads to an increase in total revenue.

Question 17

Which of the following statements is valid when supply is perfectly elastic at a price of $4?

Accepted Answer

A)  The elasticity of supply approaches infinity. 
B)  The supply curve is vertical. 
C)  At a price below $4,quantity supplied is infinite. 
D)  At a price above $4,quantity supplied is zero.

Question 18

Holding all other forces constant,when the price of gasoline rises,the number of gallons of gasoline demanded would fall substantially over a ten-year period because

Accepted Answer

A)  buyers tend to be much less sensitive to a change in price when given more time to react. 
B)  buyers tend to be much more sensitive to a change in price when given more time to react. 
C)  buyers will have substantially more real income over a ten-year period. 
D)  the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

Question 19

Scenario 5-2
The supply of aged cheddar cheese is inelastic,and the supply of bread is elastic.Both goods are considered to be normal goods by a majority of consumers.Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-2.The change in equilibrium price will be

Accepted Answer

A)  greater in the aged cheddar cheese market than in the bread market. 
B)  greater in the bread market than in the aged cheddar cheese market. 
C)  the same in the aged cheddar cheese and bread markets. 
D)  may be greater in either the aged cheddar cheese market or the bread market.

Question 20

The price elasticity of demand for bread

Accepted Answer

A)  is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread. 
B)  depends,in part,on the availability of close substitutes for bread. 
C)  reflects the many economic,social,and psychological forces that influence consumers' tastes for bread. 
D)  All of the above are correct.

Exam 5: Elasticity and Its Application

If the cross-price elasticity of demand for two goods is negative,then the two goods are substitutes.

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 price elasticity of supply for bagels is

Drug interdiction,which reduces the supply of drugs,may decrease drug-related crime because the demand for drugs is inelastic.

Table 5-1 -Studies indicate that the price elasticity of demand for cigarettes is about 0.4.A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.According to the midpoint method,the government policy should have reduced smoking by

When her income increased from $10,000 to $20,000,Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds.We can conclude that for Heather,

A 10 percent increase in gasoline prices reduces gasoline consumption by about

The smaller the price elasticity of demand,the

For which of the following goods is demand probably most inelastic?

Suppose that when the price rises by 20% for a particular good,the quantity demanded of that good falls by 10%.The price elasticity of demand for this good is equal to 2.0.

Figure 5-13 -Refer to Figure 5-13.Using the midpoint method,what is the price elasticity of supply between points A and B?

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a major shoe store.The first step you would take would be to

Figure 5-4 -Refer to Figure 5-4.Assume the section of the demand curve from A to B corresponds to prices between $8 and $16.Then,when the price changes between $9 and $10,

For a good that is a necessity,demand

Muriel's income elasticity of demand for football tickets is 1.50.All else equal,this means that if her income increases by 20 percent,she will buy

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

Which of the following statements is valid when supply is perfectly elastic at a price of $4?

Holding all other forces constant,when the price of gasoline rises,the number of gallons of gasoline demanded would fall substantially over a ten-year period because

The price elasticity of demand for bread