Question 1

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

Accepted Answer

A)  0.2 percent decrease in the quantity demanded. 
B)  5 percent decrease in the quantity demanded. 
C)  20 percent decrease in the quantity demanded. 
D)  40 percent decrease in the quantity demanded.

Question 2

Which of the following statements about the consumers' responses to rising gasoline prices is correct?

Accepted Answer

A)  About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars. 
B)  About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars. 
C)  About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars. 
D)  Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the short run or the long run.

Question 3

Table 5-1
 
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Accepted Answer

A)  A is pens and B is pencils. 
B)  A is a Snickers bar and B is a Milky Way bar. 
C)  A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler. 
D)  A is a bottle of water demanded by a tourist in a desert and B is a bottle of water demanded by a tourist in a rain forest.

Question 4

Figure 5-3 
-Refer to Figure 5-3. Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna's demand for gas is represented by demand curve

Accepted Answer

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Table 5-2
 
-Refer to Table 5-2. Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is

Accepted Answer

A)  0.4. 
B)  0.9. 
C)  1.1. 
D)  2.

Question 7

Scenario 5-4
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 5-4. 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 8

For a particular good, a 10 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)  The relevant time horizon is short. 
B)  The good is a luxury. 
C)  The market for the good is narrowly defined. 
D)  There are many close substitutes for this good.

Question 9

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

Accepted Answer

A) True 
 B)False

Question 10

Figure 5-15 
-Refer to Figure 5-15. Along which of these segments of the supply curve is supply most elastic?

Accepted Answer

A)  AB 
B)  CD 
C)  DH 
D)  GH

Question 11

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is

Accepted Answer

A)  infinity. 
B)  zero. 
C)  one. 
D)  negative one.

Question 12

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 13

The price elasticity of supply measures how much

Accepted Answer

A)  the quantity supplied responds to changes in input prices. 
B)  the quantity supplied responds to changes in the price of the good. 
C)  the price of the good responds to changes in supply. 
D)  sellers respond to changes in technology.

Question 14

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

Accepted Answer

A) True 
 B)False

Question 15

Figure 5-7 
-Refer to Figure 5-7. For prices above $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.

Question 16

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

Accepted Answer

A)  use more fertilizers and weed killers to increase their yields. 
B)  plant additional acres to increase their output. 
C)  reduce the number of acres they plant to decrease their output. 
D)  Both a and b are correct.

Question 17

Demand is elastic if the price elasticity of demand is

Accepted Answer

A)  less than 1. 
B)  equal to 1. 
C)  equal to 0. 
D)  greater than 1.

Question 18

Suppose a market has the demand function Qd=20-0.5P. Using the midpoint method, what is the price elasticity of demand between $30 and $40?

Accepted Answer

The answer of Suppose a market has the demand function...

Question 19

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a

Accepted Answer

A)  0.4 percent increase in the quantity demanded. 
B)  2.5 percent increase in the quantity demanded. 
C)  3.6 percent increase in the quantity demanded. 
D)  6 percent increase in the quantity demanded.

Question 20

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.

Exam 5: Elasticity and Its Application

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

Which of the following statements about the consumers' responses to rising gasoline prices is correct?

Table 5-1 -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Figure 5-3 -Refer to Figure 5-3. Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna's demand for gas is represented by demand curve

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

Table 5-2 -Refer to Table 5-2. Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is

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

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

Figure 5-15 -Refer to Figure 5-15. Along which of these segments of the supply curve is supply most elastic?

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is

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

The price elasticity of supply measures how much

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

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

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

Demand is elastic if the price elasticity of demand is

Suppose a market has the demand function Qd=20-0.5P. Using the midpoint method, what is the price elasticity of demand between $30 and $40?

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a