Question 1

In the case of perfectly inelastic demand,

Accepted Answer

A)   the change in quantity demanded equals the change in price.
B)   the percentage change in quantity demanded equals the percentage change in price.
C)   infinitely-large changes in quantity demanded result from very small changes in the price.
D)   quantity demanded stays the same whenever price changes.E) None of the above
F) C) and D)

Question 2

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a

Accepted Answer

A)   0.1 percent increase in the quantity demanded.
B)   1 percent increase in the quantity demanded.
C)   3 percent increase in the quantity demanded.
D)   4 percent increase in the quantity demanded.E) B) and C)
F) None of the above

Question 3

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) A) and B)
F) A) and C)

Question 4

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 5

A recent news report lamented the plight of corn farmers in Wisconsin due to a severe drought. Which of the following best describes the effect on corn farmers in Minnesota, where sufficient rainfall occurred?

Accepted Answer

A)   Their revenue increases because price increases and demand is elastic.
B)   Their revenue increases because price increases and demand is inelastic.
C)   Their revenue decreases because price decreases and demand is inelastic.
D)   Their revenue decreases because price increases and demand is elastic.E) B) and C)
F) A) and D)

Question 6

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.E) C) and D)
F) B) and D)

Question 7

Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users?

Accepted Answer

A)   The interdiction has the effect of shifting the demand curve for illegal drugs to the right.
B)   The price elasticity of demand for illegal drugs is 1.3.
C)   The price elasticity of supply for illegal drugs is 0.8.
D)   As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity of illegal drugs sold decreases by 16 percent.E) C) and D)
F) None of the above

Question 8

Table 5-10
 
-Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?

Accepted Answer

A)   Supply curve X
B)   Supply curve Y
C)   Supply curve Z
D)   There is no difference in the elasticity of the three supply curves.E) A) and D)
F) All of the above

Question 9

The price elasticity of supply along a typical supply curve is

Accepted Answer

A)   constant.
B)   equal to zero.
C)   higher at low levels of quantity supplied and lower at high levels of quantity supplied.
D)   lower at low levels of quantity supplied and higher at high levels of quantity supplied.E) A) and B)
F) A) and C)

Question 10

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

Accepted Answer

A)   is negative, and Laura's is positive.
B)   is positive, and Laura's is negative.
C)   is zero, and Laura's is positive.
D)   is zero, and Laura's is negative.E) None of the above
F) B) and D)

Question 11

Economists compute the price elasticity of demand as the

Accepted Answer

A)   percentage change in price divided by the percentage change in quantity demanded.
B)   change in quantity demanded divided by the change in the price.
C)   percentage change in quantity demanded divided by the percentage change in price.
D)   percentage change in quantity demanded divided by the percentage change in income.E) B) and C)
F) All of the above

Question 12

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

Accepted Answer

A)   higher prices and higher total revenue from marijuana sales.
B)   higher prices but lower total revenue from marijuana sales.
C)   the same price and higher total revenue from marijuana sales.
D)   the same price but lower total revenue from marijuana sales.E) A) and B)
F) B) and D)

Question 13

Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded.

Accepted Answer

A) True 
 B)False

Question 14

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

Accepted Answer

A) True 
 B)False

Question 15

The cross-price elasticity of demand can tell us whether goods are

Accepted Answer

A)   normal or inferior.
B)   elastic or inelastic.
C)   luxuries or necessities.
D)   complements or substitutes.E) A) and B)
F) All of the above

Question 16

Figure 5-15 
-Refer to Figure 5-15. Along which of these segments of the supply curve is supply least elastic?

Accepted Answer

A)   GH
B)   CD
C)   AC
D)   ABE) A) and B)
F) A) and C)

Question 17

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, macaroni

Accepted Answer

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

Question 18

Figure 5-11 
-Refer to Figure 5-11. A decrease in price from $20 to $10 leads to a

Accepted Answer

A)   decrease in total revenue of $200, so the price elasticity of demand is greater than 1 in this price range.
B)   decrease in total revenue of $200, so the price elasticity of demand is less than 1 in this price range.
C)   decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price range.
D)   decrease in total revenue of $120, so demand is elastic in this price range.E) B) and C)
F) None of the above

Question 19

If the demand for bananas is elastic, then an increase in the price of bananas will

Accepted Answer

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

Question 20

Holding all other factors constant and using the midpoint method, if a tractor manufacturer increases production from 80 to 100 units when price increases by 15 percent, then supply is

Accepted Answer

A)   inelastic, since the price elasticity of supply is equal to 0.68.
B)   inelastic, since the price elasticity of supply is equal to 1.48.
C)   elastic, since the price elasticity of supply is equal to 0.68.
D)   elastic, since the price elasticity of supply is equal to 1.48.E) A) and D)
F) B) and C)

Exam 5: Elasticity and Its Application

Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded.

Correct AnswerverifiedShow Answer

Table 5-10 -Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?

Correct AnswerverifiedShow Answer

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

Correct AnswerverifiedShow Answer

In the case of perfectly inelastic demand,

Correct AnswerverifiedShow Answer

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

Correct AnswerverifiedShow Answer

The cross-price elasticity of demand can tell us whether goods are

Correct AnswerverifiedShow Answer

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

Correct AnswerverifiedShow Answer

Holding all other factors constant and using the midpoint method, if a tractor manufacturer increases production from 80 to 100 units when price increases by 15 percent, then supply is

Correct AnswerverifiedShow Answer

A good will have a more inelastic demand, the

Correct AnswerverifiedShow Answer

Figure 5-11 -Refer to Figure 5-11. A decrease in price from $20 to $10 leads to a

Correct AnswerverifiedShow Answer

Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users?

Correct AnswerverifiedShow Answer

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a

Correct AnswerverifiedShow Answer

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, macaroni

Correct AnswerverifiedShow Answer

The price elasticity of supply along a typical supply curve is

Correct AnswerverifiedShow Answer

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A recent news report lamented the plight of corn farmers in Wisconsin due to a severe drought. Which of the following best describes the effect on corn farmers in Minnesota, where sufficient rainfall occurred?

Correct AnswerverifiedShow Answer

Economists compute the price elasticity of demand as the

Correct AnswerverifiedShow Answer

If the demand for bananas is elastic, then an increase in the price of bananas will

Correct AnswerverifiedShow Answer

Figure 5-15 -Refer to Figure 5-15. Along which of these segments of the supply curve is supply least elastic?

Correct AnswerverifiedShow Answer

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