Question 1

Which of the following statements is not valid when supply is perfectly elastic?

Accepted Answer

A)   The elasticity of supply approaches infinity.
B)   The supply curve is horizontal.
C)   Very small changes in price lead to very large changes in quantity supplied.
D)   The time period under consideration is more likely a short period rather than a long period.E) B) and D)
F) B) and C)

Question 2

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy's cross-price elasticity of demand for beans and rice is

Accepted Answer

A)   0.71, and they are substitutes.
B)   -0.71, and they are complements.
C)   1.4, and they are substitutes.
D)   -1.4, and they are complements.E) None of the above
F) All of the above

Question 3

Holding all other forces constant, if decreasing the price of a good leads to a decrease 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 decrease never leads to an decrease in total revenue.E) All of the above
F) None of the above

Question 4

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.E) None of the above
F) C) and D)

Question 5

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

Accepted Answer

A)   1.43, and an increase in the price will cause hotels' total revenue to decrease.
B)   1.43, and an increase in the price will cause hotels' total revenue to increase.
C)   0.70, and an increase in the price will cause hotels' total revenue to decrease.
D)   0.70, and an increase in the price will cause hotels' total revenue to increase.E) A) and B)
F) All of the above

Question 6

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Accepted Answer

A) True 
 B)False

Question 7

Demand is said to have unit elasticity if the price elasticity of demand is

Accepted Answer

A)   less than 1.
B)   greater than 1.
C)   equal to 1.
D)   equal to 0.E) All of the above
F) B) and C)

Question 8

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Accepted Answer

A) True 
 B)False

Question 9

Figure 5-3 
-Refer to Figure 5-3. Which demand curve is perfectly inelastic?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) A) and D)
F) A) and C)

Question 10

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

Accepted Answer

A) True 
 B)False

Question 11

Figure 5-18 
-Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $5 and $6?

Accepted Answer

A)   0.60
B)   0.64
C)   1.57
D)   1.67E) All of the above
F) B) and D)

Question 12

Elasticity measures how responsive quantity is to changes in price.

Accepted Answer

A) True 
 B)False

Question 13

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

Accepted Answer

A)   The income elasticity is 0.18 so pizza is a normal good.
B)   The income elasticity is -1 so pizza is an inferior good.
C)   The income elasticity is 1 so pizza is unitary elastic.
D)   The income elasticity is 1 so pizza is a normal good.E) B) and C)
F) A) and D)

Question 14

Figure 5-4 
-Refer to Figure 5-4. If the price increases in the region of the demand curve between points B and C, we can expect total revenue to

Accepted Answer

A)   increase.
B)   stay the same.
C)   decrease.
D)   first decrease, then increase until total revenue is maximized.E) All of the above
F) A) and C)

Question 15

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 D)
F) All of the above

Question 16

Elasticity is

Accepted Answer

A)   a measure of how much buyers and sellers respond to changes in market conditions.
B)   the study of how the allocation of resources affects economic well-being.
C)   the maximum amount that a buyer will pay for a good.
D)   the value of everything a seller must give up to produce a good.E) None of the above
F) All of the above

Question 17

Table 5-11
 
-Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run?

Accepted Answer

A)   Scenario A describes both the short run and the long run.
B)   Scenario D describes both the short run and the long run.
C)   Scenario D describes the short run, whereas scenario A describes the long run.
D)   Scenario C describes the short run, whereas scenario B describes the long run.E) A) and B)
F) C) and D)

Question 18

Supply tends to be more elastic in the short run and more inelastic in the long run.

Accepted Answer

A) True 
 B)False

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

Moving downward and to the right along a linear demand curve, we know that total revenue

Accepted Answer

A)   first increases, then decreases.
B)   first decreases, then increases.
C)   always increases.
D)   always decreases.E) A) and B)
F) None of the above

Exam 5: Elasticity and Its Application

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Moving downward and to the right along a linear demand curve, we know that total revenue

Correct Answer
verified

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Correct Answer
verified

Supply tends to be more elastic in the short run and more inelastic in the long run.

Correct Answer
verified

Elasticity is

Correct Answer
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Figure 5-4 -Refer to Figure 5-4. If the price increases in the region of the demand curve between points B and C, we can expect total revenue to

Correct Answer
verified

Which of the following statements is not valid when supply is perfectly elastic?

Correct Answer
verified

Demand is said to have unit elasticity if the price elasticity of demand is

Correct Answer
verified

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Correct Answer
verified

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

Correct Answer
verified

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

Correct Answer
verified

Correct Answer
verified

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

Correct Answer
verified

Elasticity measures how responsive quantity is to changes in price.

Correct Answer
verified

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy's cross-price elasticity of demand for beans and rice is

Correct Answer
verified

Figure 5-18 -Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $5 and $6?

Correct Answer
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Figure 5-3 -Refer to Figure 5-3. Which demand curve is perfectly inelastic?

Correct Answer
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Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run?

Correct Answer
verified

Exam 5: Elasticity and Its Application

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Moving downward and to the right along a linear demand curve, we know that total revenue

Correct AnswerverifiedShow Answer

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Correct AnswerverifiedShow Answer

Supply tends to be more elastic in the short run and more inelastic in the long run.

Correct AnswerverifiedShow Answer

Elasticity is

Correct AnswerverifiedShow Answer

Figure 5-4 -Refer to Figure 5-4. If the price increases in the region of the demand curve between points B and C, we can expect total revenue to

Correct AnswerverifiedShow Answer

Which of the following statements is not valid when supply is perfectly elastic?

Correct AnswerverifiedShow Answer

Demand is said to have unit elasticity if the price elasticity of demand is

Correct AnswerverifiedShow Answer

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

Correct AnswerverifiedShow Answer

Elasticity measures how responsive quantity is to changes in price.

Correct AnswerverifiedShow Answer

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy's cross-price elasticity of demand for beans and rice is

Correct AnswerverifiedShow Answer

Figure 5-18 -Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $5 and $6?

Correct AnswerverifiedShow Answer

Figure 5-3 -Refer to Figure 5-3. Which demand curve is perfectly inelastic?

Correct AnswerverifiedShow Answer

Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run?

Correct AnswerverifiedShow Answer

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