Question 1

In the short run, as compared to the long run, both the price elasticity of demand and the price elasticity of supply tend to be more

Accepted Answer

The answer of In the short run, as compared to...

Question 2

Scenario 5-7
Suppose the demand function for good X is given by:  where  is the quantity demanded of good X,  is the price of good X, and  is the price of good Y, which is related to good X.
-Refer to Scenario 5-7. Using the midpoint method, if the price of good Y is $10 and the price of good X decreases from $5 to $3, what is the price elasticity of demand for good X? Is the demand elastic, unitary elastic, or inelastic?

Accepted Answer

The answer of Scenario 5-7
Suppose the demand function for good...

Question 3

Suppose a market has the demand function Qd=20-0.5P. Between which of the following price ranges is demand most inelastic?

Accepted Answer

A)  $0 to $10 
B)  $10 to $20 
C)  $20 to $30 
D)  $30 to $40

Question 4

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is

Accepted Answer

A)  inelastic and equal to 0.67. 
B)  elastic and equal to 0.67. 
C)  inelastic and equal to 1.50. 
D)  elastic and equal to 1.50.

Question 5

On a downward-sloping linear demand curve, total revenue reaches its maximum value at the

Accepted Answer

A)  midpoint of the demand curve. 
B)  lower end of the demand curve. 
C)  upper end of the demand curve. 
D)  It is impossible to tell without knowing prices and quantities demanded.

Question 6

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 7

Figure 5-4 
-Refer to Figure 5-4. Assume the section of the demand curve from B to 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 equals zero.

Question 8

The case of perfectly elastic demand is illustrated by a demand curve that is

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  downward-sloping but relatively steep. 
D)  downward-sloping but relatively flat.

Question 9

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

Accepted Answer

A)  raise the price, reduce the quantity, decrease total revenues, and decrease crime. 
B)  lower the price, increase the quantity, increase total revenues, and increase crime. 
C)  raise the price, increase the quantity, decrease total revenues, and increase crime. 
D)  raise the price, reduce the quantity, increase total revenues, and increase crime.

Question 10

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Accepted Answer

A)  Leave the price at 25 cents and be patient. 
B)  Raise the price to increase total revenue. 
C)  Lower the price to increase total revenue. 
D)  There isn't enough information given to answer this question.

Question 11

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

Accepted Answer

A)  1.50, and an increase in price will result in an increase in total revenue for good A. 
B)  1.50, and an increase in price will result in a decrease in total revenue for good A. 
C)  0.67, and an increase in price will result in an increase in total revenue for good A. 
D)  0.67, and an increase in price will result in a decrease in total revenue for good A.

Question 12

Scenario 5-7
Suppose the demand function for good X is given by:  where  is the quantity demanded of good X,  is the price of good X, and  is the price of good Y, which is related to good X.
-Refer to Scenario 5-7. Using the midpoint method, if the price of good X is $10 and the price of good Y increases from $8 to $10, the cross price elasticity of demand is about

Accepted Answer

The answer of Scenario 5-7
Suppose the demand function for good...

Question 13

Figure 5-16 
-Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $4 and $6?

Accepted Answer

A)  0.75 
B)  1.00 
C)  1.20 
D)  1.25

Question 14

If the cross-price elasticity of demand for two goods is 1.25, then

Accepted Answer

A)  the two goods are luxuries. 
B)  the two goods are substitutes. 
C)  one of the goods is normal and the other good is inferior. 
D)  the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.

Question 15

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

Accepted Answer

A) True 
 B)False

Question 16

Between 1950 and today there was a

Accepted Answer

A)  20 percent drop in the number of farmers, but farm output more than tripled. 
B)  30 percent drop in the number of farmers, but farm output more than tripled. 
C)  50 percent drop in the number of farmers, but farm output more than doubled. 
D)  70 percent drop in the number of farmers, but farm output more than doubled.

Question 17

If the price elasticity of supply for a window manufacturer is 1.5,

Accepted Answer

A)  a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied. 
B)  supply is considered to be inelastic. 
C)  the manufacturer is likely operating very near capacity. 
D)  All of the above are correct.

Question 18

Which of the following expressions can be used to compute the price elasticity of demand?  
A) Price elasticity of demand = • .
B) Price elasticity of demand = • .
C) Price elasticity of demand = • .
D) Price elasticity of demand = • .

Accepted Answer

The answer of Which of the following expressions can be...

Question 19

A decrease in supply will cause the smallest increase in price when

Accepted Answer

A)  both supply and demand are inelastic. 
B)  demand is elastic and supply is inelastic. 
C)  both supply and demand are elastic. 
D)  demand is inelastic and supply is elastic.

Question 20

Which of the following statements is not valid when supply is perfectly elastic?

Accepted Answer

A)  The elasticity of supply approaches infinity. 
B)  The supply curve is horizontal. 
C)  Very small changes in price lead to very large changes in quantity supplied. 
D)  The time period under consideration is more likely a short period rather than a long period.

Exam 5: Elasticity and Its Application