Question 1

Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is

Accepted Answer

A)  -1.0, and X and Y are complements. 
B)  -1.0, and X and Y are substitutes. 
C)  1.0, and X and Y are complements. 
D)  1.0, and X and Y are substitutes.

Question 2

A key determinant of the price elasticity of supply is the

Accepted Answer

A)  time horizon. 
B)  income of consumers. 
C)  price elasticity of demand. 
D)  importance of the good in a consumer's budget.

Question 3

When demand is inelastic, the price elasticity of demand is

Accepted Answer

A)  less than 1, and price and total revenue will move in the same direction. 
B)  less than 1, and price and total revenue will move in opposite directions. 
C)  greater than 1, and price and total revenue will move in the same direction. 
D)  greater than 1, and price and total revenue will move in opposite directions.

Question 4

In general, elasticity is a measure of

Accepted Answer

A)  the extent to which advances in technology are adopted by producers. 
B)  the extent to which a market is competitive. 
C)  how firms' profits respond to changes in market prices. 
D)  how much buyers and sellers respond to changes in market conditions.

Question 5

Suppose demand is given by the equation:  Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Accepted Answer

The answer of Suppose demand is given by the equation:...

Question 6

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 7

Figure 5-7 
-Refer to Figure 5-7. For prices above $5, demand is price

Accepted Answer

A)  elastic, and raising price will increase total revenue. 
B)  inelastic, and raising price will increase total revenue. 
C)  elastic, and lowering price will increase total revenue. 
D)  inelastic, and lowering price will increase total revenue.

Question 8

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 9

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

Accepted Answer

A)  immediately after the price increase 
B)  one month after the price increase 
C)  three months after the price increase 
D)  one year after the price increase

Question 10

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

Accepted Answer

A)  1.5% in the short run and 6% in the long run. 
B)  6% in the short run and 1.5% in the long run. 
C)  16.7% in the short run and 4.2% in the long run. 
D)  4.2% in the short run and 16.7% in the long run.

Question 11

The value of the price elasticity of demand for a good will be relatively large when

Accepted Answer

A)  there are no good substitutes available for the good. 
B)  the time period in question is relatively short. 
C)  the good is a luxury rather than a necessity. 
D)  All of the above are correct.

Question 12

Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then

Accepted Answer

A)  consumers of wheat would buy more wheat. 
B)  wheat farmers would suffer a reduction in their total revenue. 
C)  wheat farmers would experience an increase in their total revenue. 
D)  the demand for wheat would decrease.

Question 13

If the price elasticity of supply is zero, then

Accepted Answer

A)  supply is more elastic than it is in any other case. 
B)  the supply curve is horizontal. 
C)  the quantity supplied is the same, regardless of price. 
D)  a change in demand will cause a relatively small change in the equilibrium price.

Question 14

The price elasticity of demand measures the

Accepted Answer

A)  magnitude of the response in quantity demanded to a change in price. 
B)  direction of the shift in the demand curve in response to a market event. 
C)  size of the shortage created by the increase in demand. 
D)  responsiveness of quantity demanded to a change in income.

Question 15

Josh mows lawns. If the demand for lawn-mowing service is elastic and Josh wants to increase his total revenue, he should

Accepted Answer

A)  increase the price of his lawn-mowing service. 
B)  decrease the price of his lawn-mowing service. 
C)  reduce the costs of operating his lawn-mowing service. 
D)  More than one of the above is correct.

Question 16

If the quantity supplied is exactly the same regardless of the price, supply is

Accepted Answer

The answer of If the quantity supplied is exactly the...

Question 17

Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is

Accepted Answer

A)  0.33. 
B)  0.88. 
C)  1.14. 
D)  7.98.

Question 18

Figure 5-12 
-Refer to Figure 5-12. Which of the following price changes would result in no change in sellers' total revenue?

Accepted Answer

A)  The price increases from $15 to $21. 
B)  The price increases from $18 to $21. 
C)  The price decreases from $24 to $18. 
D)  The price decreases from $27 to $24.

Question 19

A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.

Accepted Answer