Question 1

What is the price elasticity of demand at any point on a perfectly inelastic demand curve?

Accepted Answer

The price ...

Question 2

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) All of the above
F) C) and D)

Question 3

Figure 5-8 
-Refer to Figure 5-8. When price falls from $25 to $20, demand is

Accepted Answer

A)  inelastic, since total revenue decreases from $4,000 to $2,500.
B)  inelastic, since total revenue increases from $2,500 to $4,000.
C)  elastic, since total revenue increases from $2,500 to $4,000.
D)  unit elastic, since total revenue does not change.E) B) and C)
F) All of the above

Question 4

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about

Accepted Answer

A)  0.67% in the short run and 0.17% in the long run.
B)  3% in the short run and 1.2% in the long run.
C)  6% in the short run and 24% in the long run.
D)  66.7% in the short run and 16.7% in the long run.E) A) and C)
F) B) and C)

Question 5

Table 5-5 
-Refer to Table 5-5. Demand is unit elastic when quantity demanded changes from

Accepted Answer

A)  9 to 8.
B)  10 to 9.
C)  10 to 11.
D)  There is not enough information given to determine the correct answer.E) All of the above
F) C) and D)

Question 6

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) None of the above
F) A) and B)

Question 7

Total revenue

Accepted Answer

A)  always increases as price increases.
B)  increases as price increases, as long as demand is elastic.
C)  decreases as price increases, as long as demand is inelastic.
D)  remains unchanged as price increases when demand is unit elastic.E) A) and D)
F) B) and D)

Question 8

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

Accepted Answer

A) True 
 B)False

Question 9

Figure 5-4 
-Refer to Figure 5-4. The section of the demand curve from B to C represents the

Accepted Answer

A)  elastic section of the demand curve.
B)  inelastic section of the demand curve.
C)  unit elastic section of the demand curve.
D)  perfectly elastic section of the demand curve.E) A) and C)
F) A) and B)

Question 10

If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches

Accepted Answer

A)  zero, and the supply curve is horizontal.
B)  zero, and the supply curve is vertical.
C)  infinity, and the supply curve is horizontal.
D)  infinity, and the supply curve is vertical.E) All of the above
F) A) and B)

Question 11

A 10 percent increase in gasoline prices reduces gasoline consumption by about

Accepted Answer

A)  6 percent after one year and 2.5 percent after five years.
B)  2.5 percent after one year and 6 percent after five years.
C)  10 percent after one year and 20 percent after five years.
D)  0 percent after one year and 1 percent after five years.E) A) and B)
F) A) and D)

Question 12

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Accepted Answer

A)  Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.
B)  Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept.
C)  Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage.
D)  Without elasticity, it is very difficult to assess the degree of competition within a market.E) None of the above
F) A) and C)

Question 13

In which of the following situations would supply be the most elastic?

Accepted Answer

A)  An auto parts manufacturer is operating at capacity.
B)  A real estate developer in Boston is looking to build condos on the waterfront.
C)  A furniture manufacturer is operating its factory 8 hours per day.
D)  A hotel has all of its rooms booked for each night of the next 3 months.E) B) and D)
F) None of the above

Question 14

When demand is inelastic, a decrease in price will cause

Accepted Answer

A)  an increase in total revenue.
B)  a decrease in total revenue.
C)  no change in total revenue but an increase in quantity demanded.
D)  no change in total revenue but a decrease in quantity demanded.E) A) and D)
F) B) and C)

Question 15

Price elasticity of supply measures how much the quantity supplied responds to changes in the price.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is

Accepted Answer

A)  -1.0, and X and Y are complements.
B)  -1.0, and X and Y are substitutes.
C)  1.0, and X and Y are complements.
D)  1.0, and X and Y are substitutes.E) All of the above
F) None of the above

Question 17

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's

Accepted Answer

A)  is negative, and Bethany's is positive.
B)  is positive, and Bethany's is negative.
C)  is zero, and Bethany's approaches infinity.
D)  approaches infinity, and Bethany's is zero.E) A) and D)
F) None of the above

Question 18

Demand is said to be price elastic if

Accepted Answer

A)  the price of the good responds substantially to changes in demand.
B)  demand shifts substantially when income or the expected future price of the good changes.
C)  buyers do not respond much to changes in the price of the good.
D)  buyers respond substantially to changes in the price of the good.E) A) and B)
F) None of the above

Question 19

For a particular good, a 5 percent increase in price causes a 15 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 broadly defined.
D)  The relevant time horizon is short.E) A) and B)
F) B) and D)

Question 20

If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by

Accepted Answer

A)  1.66%, and aluminum foil sellers' total revenue will increase as a result.
B)  1.66%, and aluminum foil sellers' total revenue will decrease as a result.
C)  3.48%, and aluminum foil sellers' total revenue will increase as a result.
D)  3.48%, and aluminum foil sellers' total revenue will decrease as a result.E) All of the above
F) C) and D)

Exam 5: Elasticity and Its Application

Total revenue

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If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches

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

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Demand is said to be price elastic if

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Price elasticity of supply measures how much the quantity supplied responds to changes in the price.

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Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is

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Table 5-5 -Refer to Table 5-5. Demand is unit elastic when quantity demanded changes from

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Figure 5-4 -Refer to Figure 5-4. The section of the demand curve from B to C represents the

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If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

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What is the price elasticity of demand at any point on a perfectly inelastic demand curve?

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

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Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about

Correct AnswerverifiedShow Answer

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Correct AnswerverifiedShow Answer

If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by

Correct AnswerverifiedShow Answer

When demand is inelastic, a decrease in price will cause

Correct AnswerverifiedShow Answer

For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

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Figure 5-8 -Refer to Figure 5-8. When price falls from $25 to $20, demand is

Correct AnswerverifiedShow Answer

A 10 percent increase in gasoline prices reduces gasoline consumption by about

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While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's

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In which of the following situations would supply be the most elastic?

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The price ...
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