Question 1

Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time horizon.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is correct?

Accepted Answer

A)  The demand for natural gas is more elastic over a short period of time than over a long period of time. 
B)  The demand for smoke alarms is more elastic than the demand for Persian rugs. 
C)  The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. 
D)  All of the above are correct. 
A)  The demand for natural gas is more elastic over a short period of time than over a long period of time. 
B)  The demand for smoke alarms is more elastic than the demand for Persian rugs. 
C)  The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. 
D)  All of the above are correct.

Question 3

Table 5-8
  
-Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?

Accepted Answer

A)  -3.5 
B)  0.29 
C)  -0.29 
D)  3.5 
A)  -3.5 
B)  0.29 
C)  -0.29 
D)  3.5

Question 4

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Accepted Answer

A) True 
 B)False

Question 5

Why was OPEC unable to maintain high oil prices in the long run?

Accepted Answer

A)  Demand and supply are both elastic in the long run compared to the short run. 
B)  Demand and supply are both inelastic in the long run compared to the short run. 
C)  Demand is elastic and supply is inelastic in the long run compared to the short run. 
D)  Demand is inelastic and supply is elastic in the long run compared to the short run. 
A)  Demand and supply are both elastic in the long run compared to the short run. 
B)  Demand and supply are both inelastic in the long run compared to the short run. 
C)  Demand is elastic and supply is inelastic in the long run compared to the short run. 
D)  Demand is inelastic and supply is elastic in the long run compared to the short run.

Question 6

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the price of natural gas, a typical fuel for heating homes, rises in January in Alaska. Would you expect the price elasticity of demand for natural gas to more inelastic immediately after the price increase or at some point in the future?

Accepted Answer

The price elasticity

Question 8

The demand for Rice Krispies is more elastic than the demand for cereal in general.

Accepted Answer

A) True 
 B)False

Question 9

In January the price of widgets was $1.00, and Wendy's Widgets produced 80 widgets. In February the price of widgets was $1.50, and Wendy's Widgets produced 110 widgets. In March the price of widgets was $2.00, and Wendy's Widgets produced 140 widgets. The price elasticity of supply of Wendy's Widgets was about

Accepted Answer

A)  0.79 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
B)  1.27 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
C)  0.79 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
D)  1.27 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
A)  0.79 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. 
B)  1.27 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
C)  0.79 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. 
D)  1.27 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00.

Question 10

How did the farm population in the United States change between 1950 and today?

Accepted Answer

A)  It dropped from 10 million to fewer than 3 million people. 
B)  It dropped from 20 million to fewer than 5 million people. 
C)  It dropped from 30 million to just over 6 million people. 
D)  It increased from 10 million to almost 13 million people. 
A)  It dropped from 10 million to fewer than 3 million people. 
B)  It dropped from 20 million to fewer than 5 million people. 
C)  It dropped from 30 million to just over 6 million people. 
D)  It increased from 10 million to almost 13 million people.

Question 11

The case of perfectly elastic demand is illustrated by a demand curve that is

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  downward-sloping but relatively steep. 
D)  downward-sloping but relatively flat. 
A)  vertical. 
B)  horizontal. 
C)  downward-sloping but relatively steep. 
D)  downward-sloping but relatively flat.

Question 12

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is

Accepted Answer

A)  -0.71, and X and Y are complements. 
B)  -1.40, and X and Y are complements. 
C)  -0.71, and X and Y are substitutes. 
D)  -1.40, and X and Y are substitutes. 
A)  -0.71, and X and Y are complements. 
B)  -1.40, and X and Y are complements. 
C)  -0.71, and X and Y are substitutes. 
D)  -1.40, and X and Y are substitutes.

Question 13

Suppose demand is given by the equation:   At what price will total revenue be maximized?

Accepted Answer

Total revenue will be maximize

Question 14

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

Accepted Answer

A)  2 percent more concerts. 
B)  5 percent more concerts. 
C)  10 percent more concerts. 
D)  20 percent more concerts. 
A)  2 percent more concerts. 
B)  5 percent more concerts. 
C)  10 percent more concerts. 
D)  20 percent more concerts.

Question 15

Table 5-4
The following table shows the demand schedule for a particular good.
  
-Refer to Table 5-4. Using the midpoint method, when price falls from $8 to $4, the price elasticity of demand is

Accepted Answer

A)  0.43 
B)  0.67 
C)  1 
D)  2.33 
A)  0.43 
B)  0.67 
C)  1 
D)  2.33

Question 16

Which of the following statements is correct?

Accepted Answer

A)  The demand for flat-screen computer monitors is more elastic than the demand for monitors in general. 
B)  The demand for grandfather clocks is more elastic than the demand for clocks in general. 
C)  The demand for cardboard is more elastic over a long period of time than over a short period of time. 
D)  All of the above are correct. 
A)  The demand for flat-screen computer monitors is more elastic than the demand for monitors in general. 
B)  The demand for grandfather clocks is more elastic than the demand for clocks in general. 
C)  The demand for cardboard is more elastic over a long period of time than over a short period of time. 
D)  All of the above are correct.

Question 17

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

Accepted Answer

A)  positive. 
B)  negative. 
C)  either positive or negative. It depends whether A and B are normal goods or inferior goods. 
D)  either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve. 
A)  positive. 
B)  negative. 
C)  either positive or negative. It depends whether A and B are normal goods or inferior goods. 
D)  either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve.

Question 18

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

Accepted Answer

A)  chocolate 
B)  Godiva chocolate 
C)  Hershey's chocolate 
D)  All three would have the same elasticity of demand because they are all related. 
A)  chocolate 
B)  Godiva chocolate 
C)  Hershey's chocolate 
D)  All three would have the same elasticity of demand because they are all related.

Question 19

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price inelastic demand?

Accepted Answer

The answer of Suppose that good X is a luxury...

Exam 5: Elasticity and Its Application

Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time horizon.

Which of the following statements is correct?

Table 5-8 -Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Why was OPEC unable to maintain high oil prices in the long run?

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Suppose the price of natural gas, a typical fuel for heating homes, rises in January in Alaska. Would you expect the price elasticity of demand for natural gas to more inelastic immediately after the price increase or at some point in the future?

The demand for Rice Krispies is more elastic than the demand for cereal in general.

How did the farm population in the United States change between 1950 and today?

The case of perfectly elastic demand is illustrated by a demand curve that is

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is

Suppose demand is given by the equation: At what price will total revenue be maximized?

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

Table 5-4 The following table shows the demand schedule for a particular good. -Refer to Table 5-4. Using the midpoint method, when price falls from $8 to $4, the price elasticity of demand is

Which of the following statements is correct?

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

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

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more 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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