Question 1

If a firm is facing elastic demand,then the firm should decrease price to increase revenue.

Accepted Answer

A) True 
 B)False

Question 2

A city wants to raise revenues to build a new municipal swimming pool next year.The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues.The city manager suggests that the city lower the price of admission to raise revenues.Who is correct?

Accepted Answer

A)   Both the mayor and city manager would be correct if demand were price elastic.
B)   Both the mayor and city manager would be correct if demand were price inelastic.
C)   The mayor would be correct if demand were price elastic; the city manager would be correct if demand were price inelastic.
D)   The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.E) All of the above
F) None of the above

Question 3

If the income elasticity of demand for a good is negative,then the good must be an inferior good.

Accepted Answer

A) True 
 B)False

Question 4

Suppose demand is perfectly inelastic,and the supply of the good in question decreases.As a result,

Accepted Answer

A)   the equilibrium quantity decreases,and the equilibrium price is unchanged.
B)   the equilibrium price increases,and the equilibrium quantity is unchanged.
C)   the equilibrium quantity and the equilibrium price both are unchanged.
D)   buyers' total expenditure on the good is unchanged.E) None of the above
F) All of the above

Question 5

If a 25% change in price results in a 40% change in quantity supplied,then the price elasticity of supply is about

Accepted Answer

A)   0.63,and supply is elastic.
B)   0.63,and supply is inelastic.
C)   1.60,and supply is elastic.
D)   1.60,and supply is inelastic.E) B) and D)
F) A) and C)

Question 6

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.E) A) and C)
F) C) and D)

Question 7

If the demand for textbooks is inelastic,then a decrease in the price of textbooks will

Accepted Answer

A)   increase total revenue of textbook sellers.
B)   decrease total revenue of textbook sellers.
C)   not change total revenue of textbook sellers.
D)   There is not enough information to answer this question.E) C) and D)
F) A) and B)

Question 8

Table 5-4
 
-Refer to Table 5-4.When price is between $10 and $14,demand is

Accepted Answer

A)   elastic.
B)   unit elastic.
C)   inelastic.
D)   There is not enough information given to determine whether demand is elastic,unit elastic,or inelastic.E) B) and C)
F) A) and B)

Question 9

How did the farm population in the United States change between 1950 and today?

Accepted Answer

A)   It dropped from 10 million to fewer than 3 million people.
B)   It dropped from 20 million to fewer than 5 million people.
C)   It dropped from 30 million to just over 6 million people.
D)   It increased from 10 million to almost 13 million people.E) A) and B)
F) A) and C)

Question 10

If the price elasticity of supply is 0.8,and price increased by 5%,quantity supplied would

Accepted Answer

A)   increase by 4%.
B)   increase by 6.25%.
C)   decrease by 4%.
D)   decrease by 6.25%.E) A) and D)
F) A) and C)

Question 11

Figure 5-1 
-Refer to Figure 5-1.Between point A and point B,price elasticity of demand is equal to

Accepted Answer

A)   0.33.
B)   0.67.
C)   1.5
D)   2.67.E) All of the above
F) A) and D)

Question 12

A good will have a more inelastic demand,the

Accepted Answer

A)   greater the availability of close substitutes.
B)   broader the definition of the market.
C)   longer the period of time.
D)   more it is regarded as a luxury.E) All of the above
F) B) and D)

Question 13

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)   Any of the above could be correct.E) A) and C)
F) B) and D)

Question 14

The production of methamphetamine (meth) is a social problem in the Midwest.Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs.Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth.Assuming that each program were successful,which of the following statements is correct?

Accepted Answer

A)   Both Operation Methbust and Say No would reduce the demand for meth.
B)   Both Operation Methbust and Say No would reduce the supply of meth.
C)   Operation Methbust would reduce the demand for meth; Operation Say No would reduce the supply of meth.
D)   Operation Methbust would reduce the supply of meth; Operation Say No would reduce the demand for meth.E) B) and C)
F) A) and D)

Question 15

If the price elasticity of demand for a good is 4.0,then a 10 percent increase in price results in a

Accepted Answer

A)   0.4 percent decrease in the quantity demanded.
B)   2.5 percent decrease in the quantity demanded.
C)   4 percent decrease in the quantity demanded.
D)   40 percent decrease in the quantity demanded.E) A) and B)
F) C) and D)

Question 16

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

Accepted Answer

A)   immediately after the price increases
B)   one month after the price increase
C)   three months after the price increase
D)   one year after the price increaseE) B) and C)
F) B) and D)

Question 17

Figure 5-3 
-Refer to Figure 5-3.The demand curve representing the demand for a luxury good with several close substitutes is

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) All of the above
F) A) and B)

Question 18

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.E) A) and D)
F) C) and D)

Question 19

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

Accepted Answer

A) True 
 B)False

Question 20

Last year,Carolyn bought 6 pairs of earrings when her income was $40,000.This year,her income is $52,000,and she purchased 7 pairs of earrings.Holding other factors constant,it follows that Carolyn's income elasticity of demand is about

Accepted Answer

A)   0.59,and Carolyn regards earrings as an inferior good.
B)   0.59,and Carolyn regards earrings as a normal good.
C)   1.7,and Carolyn regards earrings as an inferior good.
D)   1.7,and Carolyn regards earrings as a normal good.E) B) and C)
F) A) and B)

Exam 5: Elasticity and Its Application

Correct Answer
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A good will have a more inelastic demand,the

Correct Answer
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Figure 5-1 -Refer to Figure 5-1.Between point A and point B,price elasticity of demand is equal to

Correct Answer
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If the price elasticity of supply is 0.8,and price increased by 5%,quantity supplied would

Correct Answer
verified

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Last year,Carolyn bought 6 pairs of earrings when her income was $40,000.This year,her income is $52,000,and she purchased 7 pairs of earrings.Holding other factors constant,it follows that Carolyn's income elasticity of demand is about

Correct Answer
verified

If a firm is facing elastic demand,then the firm should decrease price to increase revenue.

Correct Answer
verified

Figure 5-3 -Refer to Figure 5-3.The demand curve representing the demand for a luxury good with several close substitutes is

Correct Answer
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If the income elasticity of demand for a good is negative,then the good must be an inferior good.

Correct Answer
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Table 5-4 -Refer to Table 5-4.When price is between $10 and $14,demand is

Correct Answer
verified

Suppose demand is perfectly inelastic,and the supply of the good in question decreases.As a result,

Correct Answer
verified

If the price elasticity of demand for a good is 4.0,then a 10 percent increase in price results in a

Correct Answer
verified

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

Correct Answer
verified

If the demand for textbooks is inelastic,then a decrease in the price of textbooks will

Correct Answer
verified

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

Correct Answer
verified

How did the farm population in the United States change between 1950 and today?

Correct Answer
verified

If a 25% change in price results in a 40% change in quantity supplied,then the price elasticity of supply is about

Correct Answer
verified

Exam 5: Elasticity and Its Application

Correct AnswerverifiedShow Answer

A good will have a more inelastic demand,the

Correct AnswerverifiedShow Answer

Figure 5-1 -Refer to Figure 5-1.Between point A and point B,price elasticity of demand is equal to

Correct AnswerverifiedShow Answer

If the price elasticity of supply is 0.8,and price increased by 5%,quantity supplied would

Correct AnswerverifiedShow Answer

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Last year,Carolyn bought 6 pairs of earrings when her income was $40,000.This year,her income is $52,000,and she purchased 7 pairs of earrings.Holding other factors constant,it follows that Carolyn's income elasticity of demand is about

Correct AnswerverifiedShow Answer

If a firm is facing elastic demand,then the firm should decrease price to increase revenue.

Correct AnswerverifiedShow Answer

Figure 5-3 -Refer to Figure 5-3.The demand curve representing the demand for a luxury good with several close substitutes is

Correct AnswerverifiedShow Answer

If the income elasticity of demand for a good is negative,then the good must be an inferior good.

Correct AnswerverifiedShow Answer

Table 5-4 -Refer to Table 5-4.When price is between $10 and $14,demand is

Correct AnswerverifiedShow Answer

Suppose demand is perfectly inelastic,and the supply of the good in question decreases.As a result,

Correct AnswerverifiedShow Answer

If the price elasticity of demand for a good is 4.0,then a 10 percent increase in price results in a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the demand for textbooks is inelastic,then a decrease in the price of textbooks will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How did the farm population in the United States change between 1950 and today?

Correct AnswerverifiedShow Answer

If a 25% change in price results in a 40% change in quantity supplied,then the price elasticity of supply is about

Correct AnswerverifiedShow Answer

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