Question 1

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

Accepted Answer

A) Supply curves are steeper over long periods of time than over short periods of time. 
B) Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. 
C) The number of firms in a market tends to be more variable over long periods of time than over short periods of time. 
D) Firms prefer to change their prices in the short run rather than in the long run.

Question 2

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if the

Accepted Answer

A) supply of wheat is elastic. 
B) supply of wheat is inelastic. 
C) demand for wheat is inelastic. 
D) demand for wheat is elastic.

Question 3

If the price elasticity of supply for a window manufacturer is 1.5,

Accepted Answer

A) a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied. 
B) supply is considered to be inelastic. 
C) the manufacturer is likely operating very near capacity. 
D) All of the above are correct.

Question 4

The price elasticity of supply measures how responsive

Accepted Answer

A) equilibrium price is to equilibrium quantity. 
B) sellers are to a change in buyers' income. 
C) sellers are to a change in price. 
D) consumers are to the number of substitutes.

Question 5

Scenario 5-3
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-3. The equilibrium quantity will

Accepted Answer

A) increase in both the aged cheddar cheese and bread markets. 
B) increase in the aged cheddar cheese market and decrease in the bread market. 
C) decrease in the aged cheddar cheese market and increase in the bread market. 
D) decrease in both the aged cheddar cheese and bread markets.

Question 6

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A) The relevant time horizon is short. 
B) The good is a necessity. 
C) The market for the good is broadly defined. 
D) There are many close substitutes for this good.

Question 7

Suppose the price elasticity of demand for good A is 1.25. If the price of good A increases by 20%, what will be the resulting percentage change in quantity demanded for good A?

Accepted Answer

The answer of Suppose the price elasticity of demand for...

Question 8

OPEC has coordinated a reduction in supply that was

Accepted Answer

A) effective in insulating the members from the decrease in demand in the late 2000s. 
B) more profitable in the long run than in the short run. 
C) profitable in both the short run and the long run. 
D) more profitable in the short run than in the long run.

Question 9

Cross-price elasticity of demand measures how

Accepted Answer

A) the price of one good changes in response to a change in the price of another good. 
B) the quantity demanded of one good changes in response to a change in the quantity demanded of another good. 
C) the quantity demanded of one good changes in response to a change in the price of another good. 
D) strongly normal or inferior a good is.

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.

Question 11

Danita rescues dogs from her local animal shelter. When Danita's income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is

Accepted Answer

A) negative, and dog biscuits are a normal good. 
B) negative, and dog biscuits are an inferior good. 
C) positive, and dog biscuits are an inferior good. 
D) positive, and dog biscuits are a normal good.

Question 12

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of

Accepted Answer

A) the availability of close substitutes in determining the price elasticity of demand. 
B) a necessity versus a luxury in determining the price elasticity of demand. 
C) the definition of a market in determining the price elasticity of demand. 
D) the time horizon in determining the price elasticity of demand.

Question 13

Suppose the price elasticity of demand for a product is 1.3. If a supplier wants to increase revenue, what change should it make to price, if any?

Accepted Answer

The answer of Suppose the price elasticity of demand for...

Question 14

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat. Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

Accepted Answer

The answer of Suppose a farmer knows that he will...

Question 15

If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is

Accepted Answer

A) 0.50. 
B) 1. 
C) 1.5. 
D) 2.

Question 16

Demand is inelastic if the price elasticity of demand is greater than 1.

Accepted Answer

A) True 
 B)False

Question 17

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income. 
-Refer to Table 5-7. Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000?

Accepted Answer

A) 0.00 
B) 0.41 
C) 1.00 
D) 2.45

Question 18

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of

Accepted Answer

A) the availability of substitutes in determining the price elasticity of demand. 
B) a necessity versus a luxury in determining the price elasticity of demand. 
C) the definition of a market in determining the price elasticity of demand. 
D) the time horizon in determining the price elasticity of demand.

Question 19

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

Accepted Answer

A) 0.75. 
B) 1.25. 
C) 1.33. 
D) 1.60.

Question 20

Figure 5-5 
-Refer to Figure 5-5. Using the midpoint method, between prices of $70 and $80, price elasticity of demand is

Accepted Answer

A) 0.33. 
B) 0.4. 
C) 1.33. 
D) 3.

Exam 5: Elasticity and Its Application