Question 1

To determine whether a good is considered normal or inferior, one could examine the value of the

Accepted Answer

A)  income elasticity of demand for that good. 
B)  price elasticity of demand for that good. 
C)  price elasticity of supply for that good. 
D)  cross-price elasticity of demand for that good. 
A)  income elasticity of demand for that good. 
B)  price elasticity of demand for that good. 
C)  price elasticity of supply for that good. 
D)  cross-price elasticity of demand for that good.

Question 2

When supply is perfectly elastic, the value of the price elasticity of supply is

Accepted Answer

A)  0. 
B)  1. 
C)  greater than 0 and less than 1. 
D)  infinity. 
A)  0. 
B)  1. 
C)  greater than 0 and less than 1. 
D)  infinity.

Question 3

When studying how some event or policy affects a market, elasticity provides information on the

Accepted Answer

A)  change in the costs of production. 
B)  tradeoff between equality and efficiency. 
C)  effect on the budget deficit or surplus. 
D)  direction and magnitude of the effect. 
A)  change in the costs of production. 
B)  tradeoff between equality and efficiency. 
C)  effect on the budget deficit or surplus. 
D)  direction and magnitude of the effect.

Question 4

Figure 5-15  
-Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points A and B?

Accepted Answer

A)  1.0 
B)  2.33 
C)  0.43 
D)  0.1 
A)  1.0 
B)  2.33 
C)  0.43 
D)  0.1

Question 5

The federal government is concerned about the negative effects of cigarette smoking in the United States. Suppose Congress is considering two plans. One plan would limit the production of cigarettes. The other would require manufacturers to include graphic photos on cigarette packages of people suffering cancer's effects. Which of the following statements is true?

Accepted Answer

A)  Both programs would increase the price of cigarettes. 
B)  Both programs would reduce the quantity of cigarettes sold. 
C)  Both programs would decrease revenues for cigarette manufacturers. 
D)  All of the above are correct. 
A)  Both programs would increase the price of cigarettes. 
B)  Both programs would reduce the quantity of cigarettes sold. 
C)  Both programs would decrease revenues for cigarette manufacturers. 
D)  All of the above are correct.

Question 6

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

Accepted Answer

A)  fall by 8 percent. 
B)  fall by 50 percent. 
C)  rise by 8 percent. 
D)  rise by 50 percent. 
A)  fall by 8 percent. 
B)  fall by 50 percent. 
C)  rise by 8 percent. 
D)  rise by 50 percent.

Question 7

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 8

Suppose the price elasticity of demand for a product is 1. If a supplier wants to increase revenue, what change should it make to price, if any?

Accepted Answer

No change,

Question 9

As the price elasticity of supply approaches infinity, very small changes in price lead to

Accepted Answer

A)  very large changes in quantity supplied. 
B)  very small changes in quantity supplied. 
C)  no change in quantity supplied. 
D)  None of the above is correct. 
A)  very large changes in quantity supplied. 
B)  very small changes in quantity supplied. 
C)  no change in quantity supplied. 
D)  None of the above is correct.

Question 10

Moving downward and to the right along a linear demand curve, we know that total revenue

Accepted Answer

A)  first increases, then decreases. 
B)  first decreases, then increases. 
C)  always increases. 
D)  always decreases. 
A)  first increases, then decreases. 
B)  first decreases, then increases. 
C)  always increases. 
D)  always decreases.

Question 11

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

Accepted Answer

A) True 
 B)False

Question 12

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 13

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

Accepted Answer

A) True 
 B)False

Question 14

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

Accepted Answer

A) True 
 B)False

Question 15

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

Accepted Answer

A) True 
 B)False

Question 16

Demand is said to be unit elastic if quantity demanded

Accepted Answer

A)  changes by the same percent as the price. 
B)  changes by a larger percent than the price. 
C)  changes by a smaller percent than the price. 
D)  does not respond to a change in price. 
A)  changes by the same percent as the price. 
B)  changes by a larger percent than the price. 
C)  changes by a smaller percent than the price. 
D)  does not respond to a change in price.

Question 17

With regard to elasticity, if a firm has a longer time to adjust to a price increase, supply will be more

Accepted Answer

The answer of With regard to elasticity, if a firm...

Question 18

Figure 5-10  
-Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)

Accepted Answer

A)  B + D. 
B)  A + B. 
C)  C + D. 
D)  D. 
A)  B + D. 
B)  A + B. 
C)  C + D. 
D)  D.

Question 19

The price elasticity of demand measures

Accepted Answer

A)  buyers' responsiveness to a change in the price of a good. 
B)  the extent to which demand increases as additional buyers enter the market. 
C)  how much more of a good consumers will demand when incomes rise. 
D)  the movement along a supply curve when there is a change in demand. 
A)  buyers' responsiveness to a change in the price of a good. 
B)  the extent to which demand increases as additional buyers enter the market. 
C)  how much more of a good consumers will demand when incomes rise. 
D)  the movement along a supply curve when there is a change in demand.

Question 20

Which of the following is likely to have the most price inelastic demand?

Accepted Answer

A)  white chocolate chip with macadamia nut cookies 
B)  hardback novels 
C)  salt 
D)  box seats at a major league baseball game 
A)  white chocolate chip with macadamia nut cookies 
B)  hardback novels 
C)  salt 
D)  box seats at a major league baseball game

Exam 5: Elasticity and Its Application

To determine whether a good is considered normal or inferior, one could examine the value of the

When supply is perfectly elastic, the value of the price elasticity of supply is

When studying how some event or policy affects a market, elasticity provides information on the

Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points A and B?

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

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.

Suppose the price elasticity of demand for a product is 1. If a supplier wants to increase revenue, what change should it make to price, if any?

As the price elasticity of supply approaches infinity, very small changes in price lead to

Moving downward and to the right along a linear demand curve, we know that total revenue

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

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.

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

Demand is said to be unit elastic if quantity demanded

With regard to elasticity, if a firm has a longer time to adjust to a price increase, supply will be more

Figure 5-10 -Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)

The price elasticity of demand measures

Which of the following is likely to have the most price inelastic demand?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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