Question 1

If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is

Accepted Answer

A)  perfectly inelastic, and the demand curve is vertical. 
B)  elastic, and the demand curve is a straight, downward-sloping line. 
C)  perfectly elastic, and the demand curve is horizontal. 
D)  elastic, and the demand curve is something other than a straight, downward-sloping line. 
A)  perfectly inelastic, and the demand curve is vertical. 
B)  elastic, and the demand curve is a straight, downward-sloping line. 
C)  perfectly elastic, and the demand curve is horizontal. 
D)  elastic, and the demand curve is something other than a straight, downward-sloping line.

Question 2

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Accepted Answer

A)  inelastic and equal to 6. 
B)  elastic and equal to 6. 
C)  inelastic and equal to 0.17. 
D)  elastic and equal to 0.17. 
A)  inelastic and equal to 6. 
B)  elastic and equal to 6. 
C)  inelastic and equal to 0.17. 
D)  elastic and equal to 0.17.

Question 3

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

Accepted Answer

A)  1.5% in the short run and 6% in the long run. 
B)  6% in the short run and 1.5% in the long run. 
C)  16.7% in the short run and 4.2% in the long run. 
D)  4.2% in the short run and 16.7% in the long run. 
A)  1.5% in the short run and 6% in the long run. 
B)  6% in the short run and 1.5% in the long run. 
C)  16.7% in the short run and 4.2% in the long run. 
D)  4.2% in the short run and 16.7% in the long run.

Question 4

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho- Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

Accepted Answer

The appropriate elasticity to compute wo

Question 5

If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a

Accepted Answer

A)  0.33 percent increase in the quantity demanded. 
B)  3 percent increase in the quantity demanded. 
C)  30 percent increase in the quantity demanded. 
D)  48 percent increase in the quantity demanded. 
A)  0.33 percent increase in the quantity demanded. 
B)  3 percent increase in the quantity demanded. 
C)  30 percent increase in the quantity demanded. 
D)  48 percent increase in the quantity demanded.

Question 6

Figure 5-8  
-Refer to Figure 5-8. When price falls from $25 to $20, demand is

Accepted Answer

A)  inelastic, since total revenue decreases from $4,000 to $2,500. 
B)  inelastic, since total revenue increases from $2,500 to $4,000. 
C)  elastic, since total revenue increases from $2,500 to $4,000. 
D)  unit elastic, since total revenue does not change. 
A)  inelastic, since total revenue decreases from $4,000 to $2,500. 
B)  inelastic, since total revenue increases from $2,500 to $4,000. 
C)  elastic, since total revenue increases from $2,500 to $4,000. 
D)  unit elastic, since total revenue does not change.

Question 7

What is the price elasticity of demand at any point on a perfectly elastic demand curve?

Accepted Answer

The price

Question 8

Scenario 5-5
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-5. Total consumer spending on milk will

Accepted Answer

A)  increase, and total consumer spending on beef will increase. 
B)  increase, and total consumer spending on beef will decrease. 
C)  decrease, and total consumer spending on beef will increase. 
D)  decrease, and total consumer spending on beef will decrease. 
A)  increase, and total consumer spending on beef will increase. 
B)  increase, and total consumer spending on beef will decrease. 
C)  decrease, and total consumer spending on beef will increase. 
D)  decrease, and total consumer spending on beef will decrease.

Question 9

In which of the following situations would supply be the most elastic?

Accepted Answer

A)  An auto parts manufacturer is operating at capacity. 
B)  A real estate developer in Boston is looking to build condos on the waterfront. 
C)  A furniture manufacturer is operating its factory 8 hours per day. 
D)  A hotel has all of its rooms booked for each night of the next 3 months. 
A)  An auto parts manufacturer is operating at capacity. 
B)  A real estate developer in Boston is looking to build condos on the waterfront. 
C)  A furniture manufacturer is operating its factory 8 hours per day. 
D)  A hotel has all of its rooms booked for each night of the next 3 months.

Question 10

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Accepted Answer

A)  inelastic. 
B)  unit elastic. 
C)  elastic. 
D)  highly responsive to changes in income. 
A)  inelastic. 
B)  unit elastic. 
C)  elastic. 
D)  highly responsive to changes in income.

Question 11

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

Accepted Answer

A)  demand for ice cream cones in this price range is elastic. 
B)  demand for ice cream cones in this price range is inelastic. 
C)  demand for ice cream cones in this price range is unit elastic. 
D)  price elasticity of demand for ice cream cones in this price range is 0. 
A)  demand for ice cream cones in this price range is elastic. 
B)  demand for ice cream cones in this price range is inelastic. 
C)  demand for ice cream cones in this price range is unit elastic. 
D)  price elasticity of demand for ice cream cones in this price range is 0.

Question 12

The price elasticity of demand for a good measures the willingness of

Accepted Answer

A)  consumers to buy less of the good as price rises. 
B)  consumers to avoid monopolistic markets in favor of competitive markets. 
C)  firms to produce more of a good as price rises. 
D)  firms to respond to the tastes of consumers. 
A)  consumers to buy less of the good as price rises. 
B)  consumers to avoid monopolistic markets in favor of competitive markets. 
C)  firms to produce more of a good as price rises. 
D)  firms to respond to the tastes of consumers.

Question 13

Figure 5-6  
-Refer to Figure 5-6. For prices above $8, demand is price

Accepted Answer

A)  elastic, and total revenue will rise as price rises. 
B)  inelastic, and total revenue will rise as price rises. 
C)  elastic, and total revenue will fall as price rises. 
D)  inelastic, and total revenue will fall as price rises. 
A)  elastic, and total revenue will rise as price rises. 
B)  inelastic, and total revenue will rise as price rises. 
C)  elastic, and total revenue will fall as price rises. 
D)  inelastic, and total revenue will fall as price rises.

Question 14

Table 5-9
  
-Refer to Table 5-9. Which of the three supply curves represents the least elastic supply?

Accepted Answer

A)  supply curve A 
B)  supply curve B 
C)  supply curve C 
D)  There is no difference in the elasticity of the three supply curves. 
A)  supply curve A 
B)  supply curve B 
C)  supply curve C 
D)  There is no difference in the elasticity of the three supply curves.

Question 15

Suppose demand is given by the equation:   Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Accepted Answer

The price

Question 16

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the

Accepted Answer

A)  supply for marijuana is elastic. 
B)  demand for marijuana is elastic. 
C)  supply for marijuana is inelastic. 
D)  demand for marijuana is inelastid. 
A)  supply for marijuana is elastic. 
B)  demand for marijuana is elastic. 
C)  supply for marijuana is inelastic. 
D)  demand for marijuana is inelastid.

Question 17

Figure 5-7  
-Refer to Figure 5-7. For prices below $5, demand is price

Accepted Answer

A)  elastic, and raising price will increase total revenue. 
B)  inelastic, and raising price will increase total revenue. 
C)  elastic, and lowering price will increase total revenue. 
D)  inelastic, and lowering price will increase total revenue. 
A)  elastic, and raising price will increase total revenue. 
B)  inelastic, and raising price will increase total revenue. 
C)  elastic, and lowering price will increase total revenue. 
D)  inelastic, and lowering price will increase total revenue.

Question 18

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac­n­cheese, John's

Accepted Answer

A)  is negative, and Bethany's is positive. 
B)  is positive, and Bethany's is negative. 
C)  is zero, and Bethany's approaches infinity. 
D)  approaches infinity, and Bethany's is zero. 
A)  is negative, and Bethany's is positive. 
B)  is positive, and Bethany's is negative. 
C)  is zero, and Bethany's approaches infinity. 
D)  approaches infinity, and Bethany's is zero.

Question 19

If two goods are substitutes, their cross-price elasticity will be

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  equal to the difference between the income elasticities of demand for the two goods. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  equal to the difference between the income elasticities of demand for the two goods.

Question 20

A linear, downward-sloping demand curve has a constant elasticity but a changing slope.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho- Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a

Figure 5-8 -Refer to Figure 5-8. When price falls from $25 to $20, demand is

What is the price elasticity of demand at any point on a perfectly elastic demand curve?

Scenario 5-5 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-5. Total consumer spending on milk will

In which of the following situations would supply be the most elastic?

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

The price elasticity of demand for a good measures the willingness of

Figure 5-6 -Refer to Figure 5-6. For prices above $8, demand is price

Table 5-9 -Refer to Table 5-9. Which of the three supply curves represents the least elastic supply?

Suppose demand is given by the equation: Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Figure 5-7 -Refer to Figure 5-7. For prices below $5, demand is price

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac­n­cheese, John's

If two goods are substitutes, their cross-price elasticity will be

A linear, downward-sloping demand curve has a constant elasticity but a changing slope.

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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While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for macncheese, John's