Question 1

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

Accepted Answer

A)   lattés
B)   doctor's visits
C)   eggs
D)   natural gasE) A) and D)
F) B) and D)

Question 2

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

Accepted Answer

A)   a 7.5 increase in the price of the good
B)   a 13.33 percent increase in the price of the good
C)   an increase in the price of the good from $7.50 to $10
D)   an increase in the price of the good from $10 to $17.50E) B) and C)
F) C) and D)

Question 3

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

Accepted Answer

A)   raise the price,reduce the quantity,decrease total revenues,and decrease crime.
B)   lower the price,increase the quantity,increase total revenues,and increase crime.
C)   raise the price,increase the quantity,decrease total revenues,and increase crime.
D)   raise the price,reduce the quantity,increase total revenues,and increase crime.E) A) and B)
F) B) and D)

Question 4

Figure 5-6 
-Refer to Figure 5-6.Sellers' total revenue would increase if the price

Accepted Answer

A)   increased from $6 to $8.
B)   decreased from $18 to $16.
C)   decreased from $16 to $15.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 5

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following could be the cross-price elasticity of demand for two goods that are complements?

Accepted Answer

A)   -1.3
B)   0
C)   0.2
D)   1.4E) B) and C)
F) A) and D)

Question 7

Last year,Carolyn bought 6 pairs of earrings when her income was $40,000.This year,her income is $52,000,and she purchased 7 pairs of earrings.Holding other factors constant,it follows that Carolyn's income elasticity of demand is about

Accepted Answer

A)   0.59,and Carolyn regards earrings as an inferior good.
B)   0.59,and Carolyn regards earrings as a normal good.
C)   1.7,and Carolyn regards earrings as an inferior good.
D)   1.7,and Carolyn regards earrings as a normal good.E) A) and D)
F) C) and D)

Question 8

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

A)   The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases.
B)   Price elasticity of demand reflects the many economic,psychological,and social forces that shape consumer tastes.
C)   Other things equal,if good x has close substitutes and good y does not have close substitutes,then the demand for good x will be more elastic than the demand for good y.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 9

Suppose the price elasticity of supply for candles is 0.3 in the short run and 1.2 in the long run.If an increase in the demand for candles causes the price of candles to increase by 36%,then the quantity supplied of candles will increase by about

Accepted Answer

A)   0.8% in the short run and 3.3% in the long run.
B)   1.2% in the short run and 0.3% in the long run.
C)   10.8% in the short run and 43.2% in the long run.
D)   120% in the short run and 30% in the long run.E) None of the above
F) C) and D)

Question 10

You are in charge of the local city-owned aquatic center.You need to increase the revenue generated by the aquatic center in order to meet expenses.The mayor advises you to increase the price of a day pass.The city manager recommends reducing the price of a day pass.You realize that

Accepted Answer

A)   the mayor thinks demand is elastic,and the city manager thinks demand is inelastic.
B)   both the mayor and the city manager think that demand is elastic.
C)   both the mayor and the city manager think that demand is inelastic.
D)   the mayor thinks demand is inelastic,and the city manager thinks demand is elastic.E) None of the above
F) A) and C)

Question 11

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.E) A) and B)
F) C) and D)

Question 12

Holding all other forces constant,if decreasing the price of a good leads to an increase in total revenue,then the demand for the good must be

Accepted Answer

A)   unit elastic.
B)   inelastic.
C)   elastic.
D)   None of the above is correct because a price increase always leads to an increase in total revenue.E) B) and C)
F) B) and D)

Question 13

If the cross-price elasticity of demand for two goods is -4.5,then

Accepted Answer

A)   the two goods are substitutes.
B)   the two goods are complements.
C)   one of the goods is normal while the other good is inferior.
D)   one of the goods is a luxury while the other good is a necessity.E) C) and D)
F) A) and B)

Question 14

Figure 5-3 
-Refer to Figure 5-3.Mark says he would buy one Mt.Dew per day regardless of the price.If this is true,then Mark's demand for Mt.Dew is represented by demand curve

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) B) and D)
F) B) and C)

Question 15

The supply of oil is likely to be

Accepted Answer

A)   inelastic in both the short run and long run.
B)   elastic in both the short run and long run.
C)   elastic in the short run and inelastic in the long run.
D)   inelastic in the short run and elastic in the long run.E) A) and D)
F) C) and D)

Question 16

Figure 5-4 
-Refer to Figure 5-4.Assume the section of the demand curve from B to C corresponds to prices between $0 and $15.Then,when the price changes between $7 and $9,

Accepted Answer

A)   quantity demanded changes proportionately less than the price.
B)   quantity demanded changes proportionately more than the price.
C)   quantity demanded changes the same amount proportionately as price.
D)   the price elasticity of demand equals zero.E) B) and C)
F) A) and D)

Question 17

Total revenue will be at its largest value on a linear demand curve at the

Accepted Answer

A)   top of the curve,where prices are highest.
B)   midpoint of the curve.
C)   low end of the curve,where quantity demanded is highest.
D)   None of the above is correct.E) B) and D)
F) A) and D)

Question 18

Figure 5-2 
-Refer to Figure 5-2.As price falls from Pa to Pb,which demand curve represents the most elastic demand?

Accepted Answer

A)   D1
B)   D2
C)   D3
D)   All of the above are equally elastic.E) B) and C)
F) A) and B)

Question 19

On a certain supply curve,one point is (quantity supplied = 200,price = $2.00) and another point is (quantity supplied = 250,price = $2.50) .Using the midpoint method,the price elasticity of supply is about

Accepted Answer

A)   0.2.
B)   0.5.
C)   1.0.
D)   2.5.E) A) and D)
F) A) and C)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

Which of the following could be the cross-price elasticity of demand for two goods that are complements?

Correct AnswerverifiedShow Answer

You are in charge of the local city-owned aquatic center.You need to increase the revenue generated by the aquatic center in order to meet expenses.The mayor advises you to increase the price of a day pass.The city manager recommends reducing the price of a day pass.You realize that

Correct AnswerverifiedShow Answer

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

Correct AnswerverifiedShow Answer

On a certain supply curve,one point is (quantity supplied = 200,price = $2.00) and another point is (quantity supplied = 250,price = $2.50) .Using the midpoint method,the price elasticity of supply is about

Correct AnswerverifiedShow Answer

Last year,Carolyn bought 6 pairs of earrings when her income was $40,000.This year,her income is $52,000,and she purchased 7 pairs of earrings.Holding other factors constant,it follows that Carolyn's income elasticity of demand is about

Correct AnswerverifiedShow Answer

Suppose the price elasticity of supply for candles is 0.3 in the short run and 1.2 in the long run.If an increase in the demand for candles causes the price of candles to increase by 36%,then the quantity supplied of candles will increase by about

Correct AnswerverifiedShow Answer

Figure 5-3 -Refer to Figure 5-3.Mark says he would buy one Mt.Dew per day regardless of the price.If this is true,then Mark's demand for Mt.Dew is represented by demand curve

Correct AnswerverifiedShow Answer

Figure 5-2 -Refer to Figure 5-2.As price falls from Pa to Pb,which demand curve represents the most elastic demand?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the cross-price elasticity of demand for two goods is -4.5,then

Correct AnswerverifiedShow Answer

The supply of oil is likely to be

Correct AnswerverifiedShow Answer

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

Correct AnswerverifiedShow Answer

Figure 5-6 -Refer to Figure 5-6.Sellers' total revenue would increase if the price

Correct AnswerverifiedShow Answer

Total revenue will be at its largest value on a linear demand curve at the

Correct AnswerverifiedShow Answer

Figure 5-4 -Refer to Figure 5-4.Assume the section of the demand curve from B to C corresponds to prices between $0 and $15.Then,when the price changes between $7 and $9,

Correct AnswerverifiedShow Answer

Which of the following statements about the price elasticity of demand is correct?

Correct AnswerverifiedShow Answer

Holding all other forces constant,if decreasing the price of a good leads to an increase in total revenue,then the demand for the good must be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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