Question 1

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

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

Question 2

The demand for Godiva mint chocolates is likely quite elastic because

Accepted Answer

A) there are many close substitutes. 
B) this particular type of chocolate is viewed as a luxury by many chocolate lovers. 
C) the market is narrowly defined. 
D) All of the above are correct.

Question 3

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

Accepted Answer

A) 0.1 percent decrease in the quantity demanded. 
B) 1 percent decrease in the quantity demanded. 
C) 2.5 percent decrease in the quantity demanded. 
D) 10 percent decrease in the quantity demanded.

Question 4

Scenario 5-6
Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000.
-Refer to Scenario 5-6. Using the midpoint method, what is the income elasticity of demand for mobile service?

Accepted Answer

The answer of Scenario 5-6
Consider the markets for mobile and...

Question 5

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is

Accepted Answer

A) inelastic, since the price elasticity of supply is equal to .91. 
B) inelastic, since the price elasticity of supply is equal to 1.1. 
C) elastic, since the price elasticity of supply is equal to 0.91. 
D) elastic, since the price elasticity of supply is equal to 1.1.

Question 6

Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is

Accepted Answer

A) 0.33. 
B) 0.88. 
C) 1.14. 
D) 7.98.

Question 7

Figure 5-4 
-Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P = $15) and (Q = 2,400, P = $12). Then which of the following scenarios is possible?

Accepted Answer

A) Both of these points lie on section BC of the demand curve. 
B) The vertical intercept of the demand curve is the point (Q = 0, P = $22). 
C) The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0). 
D) Any of these scenarios is possible.

Question 8

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 9

Table 5-3
Consider the following demand schedule. 
-Refer to Table 5-3. Using the midpoint method, in which range is demand most elastic?

Accepted Answer

A) $0 to $3 
B) $3 to $6 
C) $9 to 12 
D) $12 to $15

Question 10

Which of the following statements is correct?

Accepted Answer

A) The demand for medicine is more elastic than the demand for sailboats. 
B) The demand for iPads is more elastic than the demand for tablets in general. 
C) The demand for cell phones is more elastic over a short period of time than over a long period of time. 
D) All of the above are correct.

Question 11

Scenario 5-5
Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar.
-Refer to Scenario 5-5. What would we expect to observe in the caviar market?

Accepted Answer

A) Equilibrium prices and quantities will increase. 
B) Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic. 
C) Total revenues to caviar firms will increase if the demand for caviar is inelastic. 
D) All of the above are correct.

Question 12

Table 5-6 
-Refer to Table 5-6. Using the midpoint method, demand is unit elastic when quantity demanded changes from

Accepted Answer

A) 500 to 400. 
B) 400 to 300. 
C) 300 to 200. 
D) 200 to 100.

Question 13

Scenario 5-2
Suppose the demand function for good X is given by:  where  is the quantity demanded of good X,  is the price of good X, and  is the price of good Y, which is related to good X.
-Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about

Accepted Answer

A) 0.57, and X and Y are substitutes. 
B) -0.22, and X and Y are complements. 
C) -0.80, and X and Y are complements. 
D) -2.57, and X and Y are complements.

Question 14

If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of

Accepted Answer

A) a 0.06 percent decrease in the price. 
B) a 1.5 percent decrease in the price. 
C) a 9.6 percent decrease in the price. 
D) a 15 percent decrease in the price.

Question 15

If the cross-price elasticity of demand for two goods is 1.25, then

Accepted Answer

A) the two goods are luxuries. 
B) the two goods are substitutes. 
C) one of the goods is normal and the other good is inferior. 
D) the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.

Question 16

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

Accepted Answer

A) 0.22. 
B) 0.67. 
C) 1.33. 
D) 1.50.

Question 17

For a vertical demand curve,

Accepted Answer

A) the slope is undefined, and the price elasticity of demand is equal to 0. 
B) the slope is equal to 0, and the price elasticity of demand is undefined. 
C) both the slope and price elasticity of demand are undefined. 
D) both the slope and price elasticity of demand are equal to 0.

Question 18

Table 5-3
Consider the following demand schedule. 
-Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand between $0 and $3?

Accepted Answer

A) 0.11 
B) 0.22 
C) 0.40 
D) 2.00

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

In which of the following situations will total revenue increase?

Accepted Answer

A) Price elasticity of demand is 1.2, and the price of the good decreases. 
B) Price elasticity of demand is 0.5, and the price of the good increases. 
C) Price elasticity of demand is 3.0, and the price of the good decreases. 
D) All of the above are correct.

Exam 5: Elasticity and Its Application