Question 1

If two linear demand (or supply) curves run through a common point, then at any given quantity, the curve that is steeper is more:

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  responsive. 
D)  resilient.

Question 2

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

Accepted Answer

A)  a rise in price of 0.5 percent 
B)  a rise in price of 2 percent 
C)  a fall in price of 0.5 percent 
D)  a fall in price of 2 percent

Question 3

The midpoint method of calculating elasticity yields the same results as other methods.

Accepted Answer

A) True 
 B)False

Question 4

In an effort to decrease carbon emissions in California, the state government decided to implement a "car buyback" program in order to decrease the number of cars on the streets. The California government would offer a $2,000 tax rebate for each car turned in. The cars would then be demolished and the steel recycled. Would a program like this succeed at significantly decreasing the number of cars driven in California? Explain.

Accepted Answer

The answer of In an effort to decrease carbon emissions...

Question 5

The price of good X increases from $55 to $60, and quantity demanded decreases from 500 to 400. The price of good Y increases from $55 to $60, and quantity demanded decreases from 500 to 475. Given this information, the:

Accepted Answer

A)  consumers who buy good X are less sensitive to price changes than consumers who buy good Y. 
B)  demand curve for good X is less elastic than the demand curve for good Y. 
C)  demand curve for good X is more elastic than the demand curve for good Y. 
D)  demand curves for good X and good Y violate the law of demand.

Question 6

Use the following to answer questions:
Figure: Slave Redemption 
-Figure: Slave Redemption with Perfectly Elastic Supply  Refer to the figure. Assume the graph illustrates the Sudanese slave trade. If the supply curve is perfectly elastic as it is in the graph, a rise in the demand for slaves (from D1 to D2) causes:

Accepted Answer

A)  the number of people in slavery to fall to zero after the redemption program. 
B)  the price of slaves to remain unchanged. 
C)  900 additional people to enter slavery temporarily before they are released. 
D)  the supply of slaves in Sudan to decrease.

Question 7

Elasticity of demand is always negative.

Accepted Answer

A) True 
 B)False

Question 8

Because of aging requirements it takes many years to make good Scotch. If a technology were invented that made it possible to create good Scotch literally overnight, how would the short-run supply of good Scotch change?

Accepted Answer

A)  It would become more elastic. 
B)  It would become less elastic. 
C)  Its elasticity would remain the same. 
D)  It is impossible to say anything about the change.

Question 9

Figure: Demand 1  In the diagram, what is the elasticity of demand between a price of $100 and $200? Use the midpoint method of calculation to find your answer.

Accepted Answer

A)  -1.8. 
B)  -0.9. 
C)  -0.6. 
D)  -0.2.

Question 10

Gun buyback programs, such as the one instituted in Washington, D.C., tend to not be very effective because:

Accepted Answer

A)  the supply of the types of guns exchanged is highly elastic. 
B)  the supply of the types of guns exchanged is not very elastic. 
C)  the programs tend to have a large impact on the price of guns on the street. 
D)  the programs simply end up decreasing the elasticity of supply.

Question 11

The elasticity of demand for cigarettes is more inelastic in the long run than in the short run because it takes a long time for some people to quit smoking.

Accepted Answer

A) True 
 B)False

Question 12

If the price of music CDs increases by 10 percent and the quantity supplied increases by 20 percent, the elasticity of supply is equal to 2.0, perhaps indicating the ease of increased production at a relatively constant unit cost.

Accepted Answer

A) True 
 B)False

Question 13

Which one of the following products would tend to have inelastic demand?

Accepted Answer

A)  luxury sedans 
B)  candy 
C)  crude oil 
D)  Black Angus T-bone steak

Question 14

In 2005, Ireland began taxing residents on how much garbage they threw away in an effort to promote recycling. In response, residents began burning trash (which is environmentally more harmful and resulted in an increase in burn victims as people accidentally set themselves on fire). This story suggests that the elasticity of demand for trash collection was more ______ than lawmakers believed because ______ than previously thought.

Accepted Answer

A)  elastic; the tax took up a larger part of residents' budgets 
B)  elastic; there were more substitutes for trash collection 
C)  inelastic; the tax took up a smaller part of residents' budgets 
D)  inelastic; there were fewer substitutes for trash collection

Question 15

The demand for Pepsi is more elastic than the demand for soda.

Accepted Answer

A) True 
 B)False

Question 16

If the price elasticity of demand is -1.2, economists would say the demand is:

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  unelastic.

Question 17

If demand is elastic, a price ________ causes ________ in total revenue.

Accepted Answer

A)  decrease; a decrease 
B)  increase; an increase 
C)  decrease; an increase 
D)  increase; no change.

Question 18

Consider a market that is described by the equations Q_d = 10 - 0.5P, and Q_s = -2 + 1.5P. What is the equilibrium price? What is the equilibrium quantity? If the supply curve shifts and the new supply equation is -4 + 1.5P, what are the new equilibrium price and the new equilibrium quantity? Calculate the price elasticity of demand. Is the demand curve between price 1 and price 2 inelastic or elastic?

Accepted Answer

The answer of Consider a market that is described by...

Question 19

If a rising price leads to falling revenues, then demand is elastic.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements about the price elasticity of supply in the Sudanese slave trade is correct?

Accepted Answer

A)  When the supply curve is more elastic, every slave bought by the redeemers is one fewer slave held in captivity. 
B)  When the supply curve is perfectly inelastic, every slave bought by the redeemers is one fewer slave held in captivity. 
C)  When the supply curve is less elastic, every slave bought by the redeemers is one additional enslaved person. 
D)  When the supply curve is more inelastic, every slave bought by the redeemers is one additional enslaved person.

Exam 5: Elasticity and Its Applications

If two linear demand (or supply) curves run through a common point, then at any given quantity, the curve that is steeper is more:

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

The midpoint method of calculating elasticity yields the same results as other methods.

The price of good X increases from $55 to $60, and quantity demanded decreases from 500 to 400. The price of good Y increases from $55 to $60, and quantity demanded decreases from 500 to 475. Given this information, the:

Elasticity of demand is always negative.

Because of aging requirements it takes many years to make good Scotch. If a technology were invented that made it possible to create good Scotch literally overnight, how would the short-run supply of good Scotch change?

Figure: Demand 1 In the diagram, what is the elasticity of demand between a price of $100 and $200? Use the midpoint method of calculation to find your answer.

Gun buyback programs, such as the one instituted in Washington, D.C., tend to not be very effective because:

The elasticity of demand for cigarettes is more inelastic in the long run than in the short run because it takes a long time for some people to quit smoking.

If the price of music CDs increases by 10 percent and the quantity supplied increases by 20 percent, the elasticity of supply is equal to 2.0, perhaps indicating the ease of increased production at a relatively constant unit cost.

Which one of the following products would tend to have inelastic demand?

The demand for Pepsi is more elastic than the demand for soda.

If the price elasticity of demand is -1.2, economists would say the demand is:

If demand is elastic, a price causes in total revenue.

If a rising price leads to falling revenues, then demand is elastic.

Which of the following statements about the price elasticity of supply in the Sudanese slave trade is correct?