Question 1

Assume that demand increases by 1 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case?

Accepted Answer

A)   -1.5
B)   -0.5
C)   0.5
D)   1.5E) B) and D)
F) B) and C)

Question 2

Increases in farm productivity have lowered the prices of many agricultural products. Farm revenues decreased, which implies that the:

Accepted Answer

A)   demand for many agricultural products is inelastic.
B)   costs of production increased.
C)   demand for many agricultural products is elastic.
D)   costs of production stayed the same.E) A) and B)
F) None of the above

Question 3

Which of the following explains why local supply tends to be more elastic than global supply?

Accepted Answer

A)   As price increases in a certain locale, it is often costly to transport more goods to that particular area, and hence supply is more elastic.
B)   Local suppliers are small in relation to the global market.
C)   The statement is false; local supply tends to be less elastic than global supply.
D)   As price increases in a certain locale, goods can be brought in from other areas, which is not possible on a global scale.E) B) and C)
F) All of the above

Question 4

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will _____ revenue for the computer chip industry and make computer chips a _____ share of the American economy.

Accepted Answer

A)   increase; larger
B)   increase; smaller
C)   decrease; larger
D)   decrease; smallerE) None of the above
F) A) and B)

Question 5

The demand curve for oil is inelastic, meaning that the quantity of oil demanded:

Accepted Answer

A)   rises by a lot even when the price of oil increases by only a little.
B)   rises by only a little even when the price of oil increases by a lot.
C)   falls by a lot even when the price of oil increases by only a little.
D)   falls by only a little even when the price of oil increases by a lot.E) A) and B)
F) B) and C)

Question 6

In an effort to decrease carbon emissions in California, the state government decided to implement a "car buyback" program in order to decrease the number of cars on the streets. The California government would offer a $2,000 tax rebate for each car turned in. The cars would then be demolished and the steel recycled. Would a program like this succeed at significantly decreasing the number of cars driven in California? Explain.

Accepted Answer

We would expect that the majority of car...

Question 7

The demand curve for physician office visits is quite inelastic; therefore:

Accepted Answer

A)   a large increase in price causes quantity demanded to decrease by very little.
B)   a large decrease in price causes quantity demanded to decrease by a lot.
C)   a small increase in price causes quantity demanded to decrease by a lot.
D)   a small decrease in price causes quantity demanded to decrease by very little.E) A) and C)
F) B) and C)

Question 8

A cross-price elasticity value that is negative will always indicate goods that are substitutes.

Accepted Answer

A) True 
 B)False

Question 9

Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity?

Accepted Answer

A)   2
B)   4
C)   -0.5
D)   -2E) A) and B)
F) None of the above

Question 10

Why do revenues increase when producers decrease the price of an elastically demanded good?

Accepted Answer

A)   Increased sales more than make up for the loss in revenue per unit sold.
B)   Marginal costs decrease when the price of an elastically demanded good decreases.
C)   Marginal benefits increase when the price of an elastically demanded good decreases.
D)   They don't. Revenues increase when the price of an inelastic good decreases.E) B) and C)
F) A) and C)

Question 11

Over the past 50 years, technological innovations have significantly decreased the costs associated with farming and the production of food. At the same time, however, the profits associated with farming have also decreased significantly. Using the concept of elasticity of demand, explain why farmers' profits have been falling as costs of production have also been falling.

Accepted Answer

Since food is a necessary good, and in g...

Question 12

A new per unit subsidy for hybrid car production increases the supply of hybrid cars. If hybrid cars are elastically demanded, what will happen to total revenues from hybrid car production?

Accepted Answer

A)   They will rise.
B)   They will fall.
C)   They will remain the same.
D)   They will change in an indeterminate direction.E) C) and D)
F) A) and B)

Question 13

Consider the markets for prescription blood pressure medications and Kraft Macaroni and Cheese. Which of these goods do you think has the more elastic demand? Which is more inelastic? Explain your reasoning.

Accepted Answer

Prescription blood pressure medications ...

Question 14

If the price of a good increases from $100 to $110 and quantity demanded decreases from 100 units to 90 units, the demand would be classified as unit elastic.

Accepted Answer

A) True 
 B)False

Question 15

Which statement about the computer chip market is TRUE?

Accepted Answer

A)   An increase in productivity shifted the supply curve to the left, driving up the price.
B)   Computer chip demand is estimated to be unit elastic, which explains why the market has not expanded as production technology has improved.
C)   Productivity increases in computer chips caused revenues to increase over time because the demand for computer chips is elastic.
D)   There are limited uses for computer chips so demand is inelastic.E) A) and C)
F) All of the above

Question 16

Figure: Demand Elasticities  Refer to the figure. It shows two different demand curves. Based on the graph, which statement is TRUE?

Accepted Answer

A)   Elasticity of demand equals the slope of the curve so demand curve A is more elastic.
B)   Elasticity of demand equals the slope of the curve so demand curve B is more elastic.
C)   Since these two linear demand curves run through a common point we can say that at any given quantity, demand curve A is more elastic than curve B.
D)   We cannot infer anything about elasticity from this diagram because slope does not equal elasticity.E) A) and D)
F) A) and C)

Question 17

Suppose that a group of humans build an enormous space ship of fixed size and travel into outer space, never to return. They live on board the ship and allocate all goods on the ship using markets. As the population grows, the price of housing on board the ship will

Accepted Answer

A)   remain constant.
B)   fall rapidly.
C)   grow more slowly than the quantity of housing supplied.
D)   grow faster than the quantity of housing supplied.E) A) and C)
F) All of the above

Question 18

Figure: Supply Elasticity  Refer to the figure. It shows two different supply curves. Based on the graph, which statement is TRUE?

Accepted Answer

A)   The same price increase would cause a bigger increase in the quantity supplied along curve A.
B)   The same price increase would cause a bigger increase in the quantity supplied along curve B.
C)   Curve A reflects a less responsive supply.
D)   If comparing responsiveness from a common point, like the intersection, we can conclude that supply curve B is more elastic.E) B) and C)
F) All of the above

Question 19

Demand for necessities is elastic, while demand for luxuries is inelastic.

Accepted Answer

A) True 
 B)False

Question 20

If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied:

Accepted Answer

A)   increases by 5 percent.
B)   increases by 20 percent.
C)   decreases by 5 percent.
D)   decreases by 20 percent.E) None of the above
F) A) and B)

Exam 5: Elasticity and Its Applications

A cross-price elasticity value that is negative will always indicate goods that are substitutes.

Correct Answer
verified

The demand curve for oil is inelastic, meaning that the quantity of oil demanded:

Correct Answer
verified

Demand for necessities is elastic, while demand for luxuries is inelastic.

Correct Answer
verified

Assume that demand increases by 1 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case?

Correct Answer
verified

The demand curve for physician office visits is quite inelastic; therefore:

Correct Answer
verified

Why do revenues increase when producers decrease the price of an elastically demanded good?

Correct Answer
verified

Figure: Demand Elasticities Refer to the figure. It shows two different demand curves. Based on the graph, which statement is TRUE?

Correct Answer
verified

Correct Answer
verified
We would expect that the majority of car...
View Answer

Increases in farm productivity have lowered the prices of many agricultural products. Farm revenues decreased, which implies that the:

Correct Answer
verified

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will _ revenue for the computer chip industry and make computer chips a _ share of the American economy.

Correct Answer
verified

A new per unit subsidy for hybrid car production increases the supply of hybrid cars. If hybrid cars are elastically demanded, what will happen to total revenues from hybrid car production?

Correct Answer
verified

Which of the following explains why local supply tends to be more elastic than global supply?

Correct Answer
verified

Which statement about the computer chip market is TRUE?

Correct Answer
verified

Figure: Supply Elasticity Refer to the figure. It shows two different supply curves. Based on the graph, which statement is TRUE?

Correct Answer
verified

If the price of a good increases from $100 to $110 and quantity demanded decreases from 100 units to 90 units, the demand would be classified as unit elastic.

Correct Answer
verified

Consider the markets for prescription blood pressure medications and Kraft Macaroni and Cheese. Which of these goods do you think has the more elastic demand? Which is more inelastic? Explain your reasoning.

Correct Answer
verified
Prescription blood pressure medications ...
View Answer

Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity?

Correct Answer
verified

Correct Answer
verified
Since food is a necessary good, and in g...
View Answer

Suppose that a group of humans build an enormous space ship of fixed size and travel into outer space, never to return. They live on board the ship and allocate all goods on the ship using markets. As the population grows, the price of housing on board the ship will

Correct Answer
verified

If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied:

Correct Answer
verified

Exam 5: Elasticity and Its Applications

A cross-price elasticity value that is negative will always indicate goods that are substitutes.

Correct AnswerverifiedShow Answer

The demand curve for oil is inelastic, meaning that the quantity of oil demanded:

Correct AnswerverifiedShow Answer

Demand for necessities is elastic, while demand for luxuries is inelastic.

Correct AnswerverifiedShow Answer

Assume that demand increases by 1 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case?

Correct AnswerverifiedShow Answer

The demand curve for physician office visits is quite inelastic; therefore:

Correct AnswerverifiedShow Answer

Why do revenues increase when producers decrease the price of an elastically demanded good?

Correct AnswerverifiedShow Answer

Figure: Demand Elasticities Refer to the figure. It shows two different demand curves. Based on the graph, which statement is TRUE?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedWe would expect that the majority of car...View AnswerShow Answer

Increases in farm productivity have lowered the prices of many agricultural products. Farm revenues decreased, which implies that the:

Correct AnswerverifiedShow Answer

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will _____ revenue for the computer chip industry and make computer chips a _____ share of the American economy.

Correct AnswerverifiedShow Answer

A new per unit subsidy for hybrid car production increases the supply of hybrid cars. If hybrid cars are elastically demanded, what will happen to total revenues from hybrid car production?

Correct AnswerverifiedShow Answer

Which of the following explains why local supply tends to be more elastic than global supply?

Correct AnswerverifiedShow Answer

Which statement about the computer chip market is TRUE?

Correct AnswerverifiedShow Answer

Figure: Supply Elasticity Refer to the figure. It shows two different supply curves. Based on the graph, which statement is TRUE?

Correct AnswerverifiedShow Answer

If the price of a good increases from $100 to $110 and quantity demanded decreases from 100 units to 90 units, the demand would be classified as unit elastic.

Correct AnswerverifiedShow Answer

Consider the markets for prescription blood pressure medications and Kraft Macaroni and Cheese. Which of these goods do you think has the more elastic demand? Which is more inelastic? Explain your reasoning.

Correct AnswerverifiedPrescription blood pressure medications ...View AnswerShow Answer

Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedSince food is a necessary good, and in g...View AnswerShow Answer

Suppose that a group of humans build an enormous space ship of fixed size and travel into outer space, never to return. They live on board the ship and allocate all goods on the ship using markets. As the population grows, the price of housing on board the ship will

Correct AnswerverifiedShow Answer

If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
We would expect that the majority of car...
View Answer

Correct Answer
verified

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will _ revenue for the computer chip industry and make computer chips a _ share of the American economy.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Prescription blood pressure medications ...
View Answer

Correct Answer
verified

Correct Answer
verified
Since food is a necessary good, and in g...
View Answer

Correct Answer
verified

Correct Answer
verified