Question 1

Figure 7-11  
-Refer to Figure 7-11. As price falls from PA to PB, which demand curve represents the most elastic demand?

Accepted Answer

A)  D1 
B)  D2 
C)  D3 
D)  All of the above are equally elastic. 
A)  D1 
B)  D2 
C)  D3 
D)  All of the above are equally elastic. A

Question 2

Sally is on her college golf team and only uses Titleist golf balls. She states: "I don't care what the price is, I will only buy Titleists." Is this a believable assertion?

Accepted Answer

Probably not. While another golf ball might sell for $2, Sally is willing to pay $3 for what she considers a superior ball. But would she pay $10, $50, $100? It is doubtful that her demand for Titleist balls is perfectly inelastic. We must assume that college students face income constraints.

Question 3

Figure 7-3  
-Figure 7-3 depicts a demand curve with a price elasticity that is

Accepted Answer

A)  perfectly elastic, implying that consumers will purchase as much as can be supplied at the market price. 
B)  relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales. 
C)  unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
D)  perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good. 
A)  perfectly elastic, implying that consumers will purchase as much as can be supplied at the market price. 
B)  relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales. 
C)  unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
D)  perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good. A

Question 4

Fred, a poor college student, states: "I eat tuna sandwiches five times a week. When I graduate and get a real job, I will never purchase tuna again." Is Fred planning on breaking the law of demand?

Accepted Answer

For normal goods, we expect consumers to

Question 5

Suppose the state of Colorado imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The absolute value of the price elasticity of demand for cigarettes is equal to

Accepted Answer

A)  0.20. 
B)  0.67. 
C)  1.50. 
D)  3.00. 
A)  0.20. 
B)  0.67. 
C)  1.50. 
D)  3.00.

Question 6

Demand will be more elastic when

Accepted Answer

A)  the time the consumer has to adjust to price changes is short. 
B)  the price of the good is low. 
C)  the number of good substitutes is large. 
D)  the consumption of the good is essential. 
A)  the time the consumer has to adjust to price changes is short. 
B)  the price of the good is low. 
C)  the number of good substitutes is large. 
D)  the consumption of the good is essential.

Question 7

Which of the following would increase the incentive of healthcare consumers to economize and help reduce the future growth of healthcare prices in the United States?

Accepted Answer

A)  An increase in the share of healthcare costs paid for either directly or from personal medical savings accounts. 
B)  Subsidies that would encourage consumers to purchase low co-payment insurance plans. 
C)  A new government program that would cover the cost of prescription drugs purchased by all healthcare consumers. 
D)  A reduction in the eligibility age for the coverage of Medicare from 65 to 55 years of age. 
A)  An increase in the share of healthcare costs paid for either directly or from personal medical savings accounts. 
B)  Subsidies that would encourage consumers to purchase low co-payment insurance plans. 
C)  A new government program that would cover the cost of prescription drugs purchased by all healthcare consumers. 
D)  A reduction in the eligibility age for the coverage of Medicare from 65 to 55 years of age.

Question 8

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause

Accepted Answer

A)  an upward movement along the demand curve for bus travel. 
B)  a downward movement along the demand curve for bus travel. 
C)  a rightward shift in the demand curve for bus travel. 
D)  a leftward shift in the demand curve for bus travel. 
A)  an upward movement along the demand curve for bus travel. 
B)  a downward movement along the demand curve for bus travel. 
C)  a rightward shift in the demand curve for bus travel. 
D)  a leftward shift in the demand curve for bus travel.

Question 9

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Accepted Answer

A)  0.40. 
B)  0.80. 
C)  1.25. 
D)  2.50. 
E)  4. 
A)  0.40. 
B)  0.80. 
C)  1.25. 
D)  2.50. 
E)  4.

Question 10

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will

Accepted Answer

A)  lead to higher healthcare prices. 
B)  lead to lower healthcare prices. 
C)  reduce the incentive of consumers to economize. 
D)  increase the incentive of healthcare providers to provide their services at a low cost. 
E)  do both a and c above. 
A)  lead to higher healthcare prices. 
B)  lead to lower healthcare prices. 
C)  reduce the incentive of consumers to economize. 
D)  increase the incentive of healthcare providers to provide their services at a low cost. 
E)  do both a and c above.

Question 11

An individual's demand curve for a good is derived by

Accepted Answer

A)  varying the income level and observing the resulting total utility derived from both goods. 
B)  varying the price of one good and observing the resulting quantities of the other good. 
C)  shifting the budget line to the left and calculating the loss in total utility. 
D)  varying the price of one good and observing the resulting quantities demanded of that good. 
A)  varying the income level and observing the resulting total utility derived from both goods. 
B)  varying the price of one good and observing the resulting quantities of the other good. 
C)  shifting the budget line to the left and calculating the loss in total utility. 
D)  varying the price of one good and observing the resulting quantities demanded of that good.

Question 12

The Affordable Care Act will subsidize the purchase of health insurance for which of the following groups?

Accepted Answer

A)  Doctors and nurses regardless of income. 
B)  Individuals and families with incomes between 133 percent and 400 percent of the poverty level. 
C)  Employees who belong to a labor union. 
D)  All workers employed by firms with fewer than 50 full-time employees. 
A)  Doctors and nurses regardless of income. 
B)  Individuals and families with incomes between 133 percent and 400 percent of the poverty level. 
C)  Employees who belong to a labor union. 
D)  All workers employed by firms with fewer than 50 full-time employees.

Question 13

Ceteris paribus, an increase in the price of a good will cause the

Accepted Answer

A)  quantity demanded of the good to increase. 
B)  quantity supplied of the good to decrease. 
C)  consumer surplus derived from the good to decrease. 
D)  demand of the good to increase. 
A)  quantity demanded of the good to increase. 
B)  quantity supplied of the good to decrease. 
C)  consumer surplus derived from the good to decrease. 
D)  demand of the good to increase.

Question 14

The price elasticity of supply

Accepted Answer

A)  will be positive when supply is elastic and negative when it is inelastic. 
B)  will be negative when supply is elastic and positive when it is inelastic. 
C)  will always be positive. 
D)  will be positive when demand for the good is inelastic. 
E)  will be positive when demand for the good is elastic. 
A)  will be positive when supply is elastic and negative when it is inelastic. 
B)  will be negative when supply is elastic and positive when it is inelastic. 
C)  will always be positive. 
D)  will be positive when demand for the good is inelastic. 
E)  will be positive when demand for the good is elastic.

Question 15

Under the current structure of Medicare, economic theory indicates that the movement of the baby boom generation into the retirement phase of life will

Accepted Answer

A)  reduce the share of healthcare services paid for by a third party. 
B)  push both healthcare prices and expenditures upward. 
C)  increase the incentive of suppliers to provide healthcare services at a low cost. 
D)  increase the incentive of consumers to economize on their use of healthcare. 
A)  reduce the share of healthcare services paid for by a third party. 
B)  push both healthcare prices and expenditures upward. 
C)  increase the incentive of suppliers to provide healthcare services at a low cost. 
D)  increase the incentive of consumers to economize on their use of healthcare.

Question 16

If people buy less flowers at every price when their incomes fall, then

Accepted Answer

A)  flowers are a normal good. 
B)  the demand for flowers is positively sloped. 
C)  demand for flowers has increased. 
D)  the price of flowers has increased. 
E)  there has been a decrease in population that changed demand. 
A)  flowers are a normal good. 
B)  the demand for flowers is positively sloped. 
C)  demand for flowers has increased. 
D)  the price of flowers has increased. 
E)  there has been a decrease in population that changed demand.

Question 17

When a good is more broadly defined (for example, Starbucks Caramel Macchiato versus coffee),

Accepted Answer

A)  it will have more available substitutes so demand will be more elastic. 
B)  it will have more available substitutes so demand will be less elastic. 
C)  it will have fewer available substitutes so demand will be more elastic. 
D)  it will have fewer available substitutes so demand will be less elastic. 
A)  it will have more available substitutes so demand will be more elastic. 
B)  it will have more available substitutes so demand will be less elastic. 
C)  it will have fewer available substitutes so demand will be more elastic. 
D)  it will have fewer available substitutes so demand will be less elastic.

Question 18

When the price of running shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

Accepted Answer

A)  0.55. 
B)  1. 
C)  1.25. 
D)  1.80. 
E)  2.50. 
A)  0.55. 
B)  1. 
C)  1.25. 
D)  1.80. 
E)  2.50.

Question 19

If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on shoes, and Santiago is a utility-maximizing consumer, he should

Accepted Answer

A)  decrease his spending on shoes. 
B)  decrease his spending on shoes and increase his spending on jeans. 
C)  increase his spending on jeans. 
D)  increase his spending on shoes and decrease his spending on jeans. 
A)  decrease his spending on shoes. 
B)  decrease his spending on shoes and increase his spending on jeans. 
C)  increase his spending on jeans. 
D)  increase his spending on shoes and decrease his spending on jeans.

Question 20

If a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that

Accepted Answer

A)  the total expenditures (including those made by the third party) on the good will decline. 
B)  the demand for the good will decrease. 
C)  consumers will have a stronger incentive to economize on their use of the good. 
D)  suppliers will have less incentive to provide the good at low prices. 
A)  the total expenditures (including those made by the third party) on the good will decline. 
B)  the demand for the good will decrease. 
C)  consumers will have a stronger incentive to economize on their use of the good. 
D)  suppliers will have less incentive to provide the good at low prices.

Figure 7-11 -Refer to Figure 7-11. As price falls from P_A to P_B, which demand curve represents the most elastic demand?

Sally is on her college golf team and only uses Titleist golf balls. She states: "I don't care what the price is, I will only buy Titleists." Is this a believable assertion?

Figure 7-3 -Figure 7-3 depicts a demand curve with a price elasticity that is

Fred, a poor college student, states: "I eat tuna sandwiches five times a week. When I graduate and get a real job, I will never purchase tuna again." Is Fred planning on breaking the law of demand?

Suppose the state of Colorado imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The absolute value of the price elasticity of demand for cigarettes is equal to

Demand will be more elastic when

Which of the following would increase the incentive of healthcare consumers to economize and help reduce the future growth of healthcare prices in the United States?

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will

An individual's demand curve for a good is derived by

The Affordable Care Act will subsidize the purchase of health insurance for which of the following groups?

Ceteris paribus, an increase in the price of a good will cause the

The price elasticity of supply

Under the current structure of Medicare, economic theory indicates that the movement of the baby boom generation into the retirement phase of life will

If people buy less flowers at every price when their incomes fall, then

When a good is more broadly defined (for example, Starbucks Caramel Macchiato versus coffee),

When the price of running shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on shoes, and Santiago is a utility-maximizing consumer, he should

If a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Gaining From International Trade

Filters

Exam 7: Consumer Choice and Elasticity

Figure 7-11 -Refer to Figure 7-11. As price falls from PA to PB, which demand curve represents the most elastic demand?

Sally is on her college golf team and only uses Titleist golf balls. She states: "I don't care what the price is, I will only buy Titleists." Is this a believable assertion?

Figure 7-3 -Figure 7-3 depicts a demand curve with a price elasticity that is

Fred, a poor college student, states: "I eat tuna sandwiches five times a week. When I graduate and get a real job, I will never purchase tuna again." Is Fred planning on breaking the law of demand?

Suppose the state of Colorado imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The absolute value of the price elasticity of demand for cigarettes is equal to

Demand will be more elastic when

Which of the following would increase the incentive of healthcare consumers to economize and help reduce the future growth of healthcare prices in the United States?

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will

An individual's demand curve for a good is derived by

The Affordable Care Act will subsidize the purchase of health insurance for which of the following groups?

Ceteris paribus, an increase in the price of a good will cause the

The price elasticity of supply

Under the current structure of Medicare, economic theory indicates that the movement of the baby boom generation into the retirement phase of life will

If people buy less flowers at every price when their incomes fall, then

When a good is more broadly defined (for example, Starbucks Caramel Macchiato versus coffee),

When the price of running shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on shoes, and Santiago is a utility-maximizing consumer, he should

If a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Gaining From International Trade

Filters

Figure 7-11 -Refer to Figure 7-11. As price falls from P_A to P_B, which demand curve represents the most elastic demand?