Question 1

Refer to the graph shown. Area F is:

Accepted Answer

A) smaller than areas B and C, because demand is elastic between $10 and $30. 
B) larger than areas B and C, because demand is elastic between $10 and $30. 
C) larger than areas B and C, because demand is inelastic between $10 and $30. 
D) smaller than areas B and C, because demand is inelastic between $10 and $30. 
A) smaller than areas B and C, because demand is elastic between $10 and $30. 
B) larger than areas B and C, because demand is elastic between $10 and $30. 
C) larger than areas B and C, because demand is inelastic between $10 and $30. 
D) smaller than areas B and C, because demand is inelastic between $10 and $30.

Question 2

Inelastic demand creates an incentive for suppliers to:

Accepted Answer

A) try to get together and limit quantity supplied. 
B) try to get together and increase quantity supplied. 
C) compete with each other and increase quantity supplied. 
D) stop producing altogether. 
A) try to get together and limit quantity supplied. 
B) try to get together and increase quantity supplied. 
C) compete with each other and increase quantity supplied. 
D) stop producing altogether.

Question 3

What are complementary goods? Give an example.

Accepted Answer

Complementary goods or complem

Question 4

In which case will the price change be the greatest (assuming the shifts described are the same size)?

Accepted Answer

A) Demand is inelastic, and supply shifts to the left. 
B) Supply is perfectly elastic, and demand shifts to the left. 
C) Demand is elastic, and supply shifts to the left. 
D) Supply is elastic, and demand shifts to the left. 
A) Demand is inelastic, and supply shifts to the left. 
B) Supply is perfectly elastic, and demand shifts to the left. 
C) Demand is elastic, and supply shifts to the left. 
D) Supply is elastic, and demand shifts to the left.

Question 5

If demand is highly elastic and supply shifts to the right:

Accepted Answer

A) price will fall significantly; quantity hardly changes at all. 
B) price will hardly change at all; quantity will rise significantly. 
C) price will rise significantly as will quantity. 
D) price and quantity will hardly change at all. 
A) price will fall significantly; quantity hardly changes at all. 
B) price will hardly change at all; quantity will rise significantly. 
C) price will rise significantly as will quantity. 
D) price and quantity will hardly change at all.

Question 6

Consider the following demand curve for Starbucks coffee.   (a)Suppose the current price is $8 per cup.Using elasticity of demand,explain why Starbucks should not increase the price in order to increase total revenue.
(b)Suppose the current price is $2 per cup.Using elasticity of demand,explain why Starbucks should not lower the price in order to increase total revenue.

Accepted Answer

(a)At this range on the demand curve,dem

Question 7

Are the elasticities of demand and supply the same as the slopes of demand and supply curves? Explain.

Accepted Answer

No,they are not the same.If a demand cur

Question 8

You started a pajama business four years ago and it is now becoming quite successful.You are thinking of hiring an economic consultant to help you rise to the next level in your industry.One consultant is familiar with the concept of elasticity;one is not.Which one would you hire? Explain your reasoning.

Accepted Answer

You should hire the consultant who is fa

Question 9

If frost in Florida reduces the quantity of vegetables sold by 20 percent and increases their retail price by 30 percent, one can conclude that:

Accepted Answer

A) the demand has shifted to the right along a perfectly inelastic supply curve. 
B) the demand has shifted to the right along a perfectly elastic supply curve. 
C) the supply of vegetables has shifted to the left along an elastic demand curve. 
D) the supply of vegetables has shifted to the left along an inelastic demand curve. 
A) the demand has shifted to the right along a perfectly inelastic supply curve. 
B) the demand has shifted to the right along a perfectly elastic supply curve. 
C) the supply of vegetables has shifted to the left along an elastic demand curve. 
D) the supply of vegetables has shifted to the left along an inelastic demand curve.

Question 10

Refer to the graph shown. When price rises by 20 percent, quantity supplied rises by 25 percent. Which curve best demonstrates elasticity in this example?

Accepted Answer

A) A 
B) B 
C) C 
D) None of the answers is correct. 
A) A 
B) B 
C) C 
D) None of the answers is correct.

Question 11

If the quantity of houses supplied in an area increases 10 percent when the price goes up 25 percent, the supply:

Accepted Answer

A) is elastic. 
B) is inelastic. 
C) is unit elastic. 
D) is perfectly elastic. 
A) is elastic. 
B) is inelastic. 
C) is unit elastic. 
D) is perfectly elastic.

Question 12

In general, the greater the elasticity, the:

Accepted Answer

A) smaller the responsiveness of price to changes in quantity. 
B) smaller the responsiveness of quantity to changes in price. 
C) larger the responsiveness of price to changes in quantity. 
D) larger the responsiveness of quantity to changes in price. 
A) smaller the responsiveness of price to changes in quantity. 
B) smaller the responsiveness of quantity to changes in price. 
C) larger the responsiveness of price to changes in quantity. 
D) larger the responsiveness of quantity to changes in price.

Question 13

The cross-price elasticity of demand is the percentage change in price divided by the percentage change in the price of another good.

Accepted Answer

A) True 
 B)False

Question 14

If a $100 drop in the price of a $10,000 car resulted in an increase in the quantity of cars purchased from 100 to 110 and a $100 drop in the price of a $1,000 vacation rental resulted in an increase in the quantity of weekly vacation homes rented from 100 to 110, the price elasticity of demand is:

Accepted Answer

A) greater for the car. 
B) less for the car. 
C) the same for both the car and the vacation rental. 
D) not comparable. 
A) greater for the car. 
B) less for the car. 
C) the same for both the car and the vacation rental. 
D) not comparable.

Question 15

For complements:

Accepted Answer

A) cross-price elasticity of demand is negative. 
B) cross-price elasticity of demand is positive. 
C) price elasticity of income is negative. 
D) price elasticity of income is positive. 
A) cross-price elasticity of demand is negative. 
B) cross-price elasticity of demand is positive. 
C) price elasticity of income is negative. 
D) price elasticity of income is positive.

Question 16

Along a straight-line demand curve, total revenue is the highest when elasticity of demand is:

Accepted Answer

A) zero. 
B) 1. 
C) infinity. 
D) between zero and 1. 
A) zero. 
B) 1. 
C) infinity. 
D) between zero and 1.

Question 17

If an economist observed that higher hot dog prices lead to an increase in the demand for chili, she most likely would conclude that:

Accepted Answer

A) chili and hot dogs are complements. 
B) chili and hot dogs are substitutes. 
C) chili and hot dogs are both inferior goods. 
D) chili and hot dogs are both normal goods. 
A) chili and hot dogs are complements. 
B) chili and hot dogs are substitutes. 
C) chili and hot dogs are both inferior goods. 
D) chili and hot dogs are both normal goods.

Question 18

If the price of a good goes up by 5 percent and, in response, the quantity demanded falls by 15 percent, the price elasticity of demand will be:

Accepted Answer

A) .05. 
B) 3. 
C) 0.3333. 
D) 0.15. 
A) .05. 
B) 3. 
C) 0.3333. 
D) 0.15.

Question 19

If quantity demanded does not change when the price changes, the demand:

Accepted Answer

A) is elastic. 
B) is inelastic. 
C) has unit elasticity. 
D) is perfectly inelastic. 
A) is elastic. 
B) is inelastic. 
C) has unit elasticity. 
D) is perfectly inelastic.

Question 20

How can the cross-price elasticity be used to determine whether two goods are complements or substitutes?

Accepted Answer

The cross-price elasticity is the percen

Exam 6: Describing Supply and Demand: Elasticities

Refer to the graph shown. Area F is:

Inelastic demand creates an incentive for suppliers to:

What are complementary goods? Give an example.

In which case will the price change be the greatest (assuming the shifts described are the same size)?

If demand is highly elastic and supply shifts to the right:

Are the elasticities of demand and supply the same as the slopes of demand and supply curves? Explain.

If frost in Florida reduces the quantity of vegetables sold by 20 percent and increases their retail price by 30 percent, one can conclude that:

Refer to the graph shown. When price rises by 20 percent, quantity supplied rises by 25 percent. Which curve best demonstrates elasticity in this example?

If the quantity of houses supplied in an area increases 10 percent when the price goes up 25 percent, the supply:

In general, the greater the elasticity, the:

The cross-price elasticity of demand is the percentage change in price divided by the percentage change in the price of another good.

If a $100 drop in the price of a $10,000 car resulted in an increase in the quantity of cars purchased from 100 to 110 and a $100 drop in the price of a $1,000 vacation rental resulted in an increase in the quantity of weekly vacation homes rented from 100 to 110, the price elasticity of demand is:

For complements:

Along a straight-line demand curve, total revenue is the highest when elasticity of demand is:

If an economist observed that higher hot dog prices lead to an increase in the demand for chili, she most likely would conclude that:

If the price of a good goes up by 5 percent and, in response, the quantity demanded falls by 15 percent, the price elasticity of demand will be:

If quantity demanded does not change when the price changes, the demand:

How can the cross-price elasticity be used to determine whether two goods are complements or substitutes?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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