Question 1

Which of the following factors causes a demand curve to become more elastic over time?

Accepted Answer

A)  New substitutes for the product are discovered. 
B)  New and important uses for the product are discovered. 
C)  More producers begin to produce the product. 
D)  More consumers acquire a desire for the product. 
A)  New substitutes for the product are discovered. 
B)  New and important uses for the product are discovered. 
C)  More producers begin to produce the product. 
D)  More consumers acquire a desire for the product.

Question 2

If the income elasticity of demand of a good is negative, we can conclude that the good is:

Accepted Answer

A)  a normal good. 
B)  an inferior good. 
C)  a substitute. 
D)  a complement. 
A)  a normal good. 
B)  an inferior good. 
C)  a substitute. 
D)  a complement.

Question 3

If the price of gasoline in this country were expected to rise due to a permanent increase in the tax on gasoline, which of the following would you expect to happen?

Accepted Answer

A)  The demand for gasoline would become more elastic. 
B)  The demand for gasoline would decrease as a result of the higher price. 
C)  Producers will have less of an incentive to supply gasoline as a result of the higher taxes. 
D)  The elasticity of demand will not change since gasoline is a necessary good. 
A)  The demand for gasoline would become more elastic. 
B)  The demand for gasoline would decrease as a result of the higher price. 
C)  Producers will have less of an incentive to supply gasoline as a result of the higher taxes. 
D)  The elasticity of demand will not change since gasoline is a necessary good.

Question 4

The elasticity of supply measures:

Accepted Answer

A)  how quickly a surplus is eliminated. 
B)  how quantity supplied responds to price changes. 
C)  the profit margin of sellers' products. 
D)  the costs of changing production methods. 
A)  how quickly a surplus is eliminated. 
B)  how quantity supplied responds to price changes. 
C)  the profit margin of sellers' products. 
D)  the costs of changing production methods.

Question 5

If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent causes the quantity supplied of it to:

Accepted Answer

A)  rise 20 percent. 
B)  fall 20 percent. 
C)  rise 1.25 percent. 
D)  fall 1.25 percent. 
A)  rise 20 percent. 
B)  fall 20 percent. 
C)  rise 1.25 percent. 
D)  fall 1.25 percent.

Question 6

Figure: Elasticity of Swim Trunks   
The demand for swim trunks appears in the figure. What is the elasticity of demand for swim trunks? Suppose that your swimwear business is currently overstocked with swim trunks. If you want to sell 18 percent more swim trunks, how much should you cut your price?

Accepted Answer

The elasticity of demand is 30/25 ÷ –10/

Question 7

If the cross-price elasticity of demand of two goods is positive, we can conclude that the two goods are:

Accepted Answer

A)  normal goods. 
B)  inferior goods. 
C)  substitutes. 
D)  complements. 
A)  normal goods. 
B)  inferior goods. 
C)  substitutes. 
D)  complements.

Question 8

Which statement about the computer chip market is TRUE?

Accepted Answer

A)  An increase in productivity shifted the supply curve to the left, driving up the price. 
B)  Computer chip demand is estimated to be unit elastic, which explains why the market has not expanded as production technology has improved. 
C)  Productivity increases in computer chips caused revenues to increase over time because the demand for computer chips is elastic. 
D)  There are limited uses for computer chips so demand is inelastic. 
A)  An increase in productivity shifted the supply curve to the left, driving up the price. 
B)  Computer chip demand is estimated to be unit elastic, which explains why the market has not expanded as production technology has improved. 
C)  Productivity increases in computer chips caused revenues to increase over time because the demand for computer chips is elastic. 
D)  There are limited uses for computer chips so demand is inelastic.

Question 9

When a shift in demand or supply occurs, economists can make a quick prediction of the change in price. The denominator of the simple price-change formula is the:

Accepted Answer

A)  multiple of the elasticities of supply and demand. 
B)  sum of the elasticities of supply and demand. 
C)  difference between the elasticities of supply and demand. 
D)  percent change in either demand or supply. 
A)  multiple of the elasticities of supply and demand. 
B)  sum of the elasticities of supply and demand. 
C)  difference between the elasticities of supply and demand. 
D)  percent change in either demand or supply.

Question 10

The demand for necessary goods tends to be less elastic.

Accepted Answer

A) True 
 B)False

Question 11

If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price.

Accepted Answer

A) True 
 B)False

Question 12

Figure: Price Elasticity of Demand   Refer to the figure. Which of the four demand curves has the greatest responsiveness to price changes?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 13

In regards to the criminalization of drugs, Nobel prize-winning economist Gary Becker suggested:

Accepted Answer

A)  raising the capital gains tax to help provide more government resources for the war on drugs. 
B)  that the government should make drugs legal and then place a tax on drugs to control their usage. 
C)  subsidizing the consumption of illegal drugs in an effort to avoid deadweight losses. 
D)  All of the answers are correct. 
A)  raising the capital gains tax to help provide more government resources for the war on drugs. 
B)  that the government should make drugs legal and then place a tax on drugs to control their usage. 
C)  subsidizing the consumption of illegal drugs in an effort to avoid deadweight losses. 
D)  All of the answers are correct.

Question 14

The elasticity of demand measures how sensitive the:

Accepted Answer

A)  price is to a change in quantity demanded. 
B)  quantity demanded is to a change in price. 
C)  price is to a change in the quantity supplied. 
D)  demand is to a change in the number of suppliers. 
A)  price is to a change in quantity demanded. 
B)  quantity demanded is to a change in price. 
C)  price is to a change in the quantity supplied. 
D)  demand is to a change in the number of suppliers.

Question 15

When the demand curve for a good is unit elastic, raising the price of the good by 25 percent will change the revenue of the firm by:

Accepted Answer

A)  125 percent. 
B)  100 percent. 
C)  25 percent. 
D)  0 percent. 
A)  125 percent. 
B)  100 percent. 
C)  25 percent. 
D)  0 percent.

Question 16

A perfectly inelastic supply curve is a:

Accepted Answer

A)  vertical line indicating that a very large increase in price will increase the quantity supplied. 
B)  vertical line indicating that even a very large increase in price won't increase the quantity supplied. 
C)  horizontal line indicating that a very small increase in price will increase the quantity supplied. 
D)  horizontal line indicating that even a very small increase in price won't increase the quantity supplied. 
A)  vertical line indicating that a very large increase in price will increase the quantity supplied. 
B)  vertical line indicating that even a very large increase in price won't increase the quantity supplied. 
C)  horizontal line indicating that a very small increase in price will increase the quantity supplied. 
D)  horizontal line indicating that even a very small increase in price won't increase the quantity supplied.

Question 17

Figure: Price Decrease and Elasticity   Refer to the figure. If price decreases from $20 to $10, total revenue will:

Accepted Answer

A)  decrease by $1,500, so the demand curve is inelastic. 
B)  decrease by $2,500, so the demand curve is inelastic. 
C)  increase by $1,500, so the demand curve is elastic. 
D)  increase by $2,500, so the demand curve is elastic. 
A)  decrease by $1,500, so the demand curve is inelastic. 
B)  decrease by $2,500, so the demand curve is inelastic. 
C)  increase by $1,500, so the demand curve is elastic. 
D)  increase by $2,500, so the demand curve is elastic.

Question 18

The fundamental determinant of the elasticity of demand is:

Accepted Answer

A)  how quickly per-unit costs increase with an increase in production. 
B)  tastes and preferences. 
C)  population. 
D)  the number and closeness of substitutes. 
A)  how quickly per-unit costs increase with an increase in production. 
B)  tastes and preferences. 
C)  population. 
D)  the number and closeness of substitutes.

Question 19

If the demand for a good is elastic, then:

Accepted Answer

A)  revenues increase when the price goes up. 
B)  revenues decrease when the price goes up. 
C)  any change in price is matched by an equal and opposite percentage change in quantity, so revenues stay the same. 
D)  revenues decrease regardless of the direction of the price change. 
A)  revenues increase when the price goes up. 
B)  revenues decrease when the price goes up. 
C)  any change in price is matched by an equal and opposite percentage change in quantity, so revenues stay the same. 
D)  revenues decrease regardless of the direction of the price change.

Question 20

Over the past 50 years, technological innovations have significantly decreased the costs associated with farming and the production of food. At the same time, however, the profits associated with farming have also decreased significantly. Using the concept of elasticity of demand, explain why farmers' profits have been falling as costs of production have also been falling.

Accepted Answer

Since food is a necessary good, and in g

Exam 5: Elasticity and Its Applications

Which of the following factors causes a demand curve to become more elastic over time?

If the income elasticity of demand of a good is negative, we can conclude that the good is:

If the price of gasoline in this country were expected to rise due to a permanent increase in the tax on gasoline, which of the following would you expect to happen?

The elasticity of supply measures:

If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent causes the quantity supplied of it to:

Figure: Elasticity of Swim Trunks The demand for swim trunks appears in the figure. What is the elasticity of demand for swim trunks? Suppose that your swimwear business is currently overstocked with swim trunks. If you want to sell 18 percent more swim trunks, how much should you cut your price?

If the cross-price elasticity of demand of two goods is positive, we can conclude that the two goods are:

Which statement about the computer chip market is TRUE?

When a shift in demand or supply occurs, economists can make a quick prediction of the change in price. The denominator of the simple price-change formula is the:

The demand for necessary goods tends to be less elastic.

If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price.

Figure: Price Elasticity of Demand Refer to the figure. Which of the four demand curves has the greatest responsiveness to price changes?

In regards to the criminalization of drugs, Nobel prize-winning economist Gary Becker suggested:

The elasticity of demand measures how sensitive the:

When the demand curve for a good is unit elastic, raising the price of the good by 25 percent will change the revenue of the firm by:

A perfectly inelastic supply curve is a:

Figure: Price Decrease and Elasticity Refer to the figure. If price decreases from $20 to $10, total revenue will:

The fundamental determinant of the elasticity of demand is:

If the demand for a good is elastic, then:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

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